IMPORTANCE AND USEFULNESS OF DEBT STATISTICS IN THE LAC DEBT GROUP FRAMEWORK A PROPOSAL

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IMPORTANCE AND USEFULNESS OF DEBT STATISTICS IN
THE LAC DEBT GROUP FRAMEWORK - A PROPOSAL

• IV Workshop of the LAC Debt Group Advances in
  Debt Management under Current International
  Financial Crisis Framework
• Capital Markets and Financial Institutions
  Division
• Inter-American Development Bank
• Washington D.C., October 30-31, 2008

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Importance of Debt Indicators

• Country Debtors are interested in knowing their
  current and future liabilities to be able to
  schedule debt payments, comply with government
  financial needs and liquidity requirements. It is
  crucial for debt managers to know government
  obligations, in order to determine their future
  credit needs.
• Regional / International An homogeneous
  definition of debt in the region allows to
  compare the levels of debt and its composition
  among countries. Uniform data allows to know how
  a country debt is positioned within the regional
  context. Comparison can also be made
  intra-regional, e.g. Latin America and the
  Caribbean vs. other regions.
• Investors Analyze the countries levels of debt
  and payment projections to make their investment
  decisions. Transparency in market operations.
• Credit Rating Agencies Determine the probability
  of default of countries.

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Definitions

• Gross vs. Net Debt
• Gross debt equals the government stock of debt
  without any subtractions. It consists of all
  liabilities that require payment or payments of
  interest and principal by the debtor to the
  creditor at a date or dates in the future.
• Net debt gives a more accurate measure of the
  level of indebtedness. It excludes public
  entities' holdings of debt, and sometimes, the
  financial assets owned by the public sector. Its
  definition may vary among countries subtract
  sovereign debt hold by the CB, foreign reserves

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Definitions

• External and Domestic Debt
• The international criteria used to distinguish
  between external and domestic is based on the
  residence of the creditor
• IMFs Definition "Gross external debt, is the
  outstanding amount of those actual current, and
  not contingent, liabilities that require
  payment(s) of principal and/or interest by the
  debtor at some point(s) in the future and that
  are owed to nonresidents by residents of an
  economy. This definition is usually applied by
  the Central Bank.
• Legal framework divides debt according its
  legislation
• Some countries in the region use the currency
  criteria, which distinguishes between domestic
  and external debt according to the currency
  denomination.

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Important Debt Indicators

• Debt sustainability analysis
• Solvency
• Debt to GDP ratio
• Foreign debt to exports ratio
• Debt to current fiscal revenue ratio
• Structure of outstanding debt
• Liquidity
• Debt Service to GDP
• Foreign debt service to exports ratio
• Debt ratio to current fiscal revenue ratio

• Forward looking
• Dynamic ratios change in ratios in the absence
  of repayments / disbursements
• Average interest rate on outstanding debt to the
  growth rate of nominal GDP
• Sovereign Risk
• EMBI spreads / yields
• Credit Default Swaps (CDS)
• Currency rate

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Domestic Debt Data

• The majority of the datasets focuses on external
  debt
• Domestic debt data is more difficult to collect
• External debt tends to be of medium term with
  relatively homogeneous composition among
  countries. However, domestic debt compositions in
  the region are heterogeneous, which makes them
  more interesting to analyze
• Jeanne and Guscina (2006) Annual dataset of the
  central government debt in 19 countries. Main
  categories used are
• Maturity Short, medium and long term
• Denomination/indexation of the principal local
  currency, foreign currency or priced index
• Fixed or Variable Rate

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LAC Debt Group Activities (so far)

• Subgroup of Debt Statistics created to develop a
  statistic framework that allows comparison among
  countries.
• Consultant guided and supported countries in the
  creation of a standardized methodology for
  measuring the stock of debt and its projections.
• Template serves as input for standardization and
  avoids operational costs that may arise by
  multiple formats. Disaggregate debt to allow
  analysis of its components.
• Videoconferences realized to discuss the
  template construction. Template should be the
  outcome of joined efforts.
• Documentation all the work has been documented.
  The template is supported by a users manual
  which explain the rules and the definitions of
  each of the components of the template.

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LAC Debt Group Initiative

• Although countries have identified the need of
  standardization, participation has been low.
• According to a survey called out last year, main
  problems identified are
• Information availability not calculated by the
  DMO, not public, not calculated at all.
• Frequency of data
• Time consuming cost associated is high. Template
  is not friendly.
• Personnel and training
• Help of a consultant is still needed

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Template

• Gross Debt
• External Debt definition legislation criteria
• Stock of debt and projections
• Periodicity quarterly
• Currency USD
• Disaggregation categories
• Domestic and External Debt (also disaggregated by
  USD, EUR, GBP, JPY)
• Central Government and Central Bank Debt
• Tradedable instruments and non-tradable
  instruments (type of loans, type of creditor,
  type of bonds)
• Medium and Long Term Debt and Short Term Debt
• Flows (principal, interest, fees)

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Lessons Learned

• Huge diversity in definitions and
  classifications important to understand and
  adapt to a single one.
• Countries are not all at the same stage,
  adaptation of their systems and statistics
  processes to fit the template requirements may
  need some time.
• Identification of the regions needs why do we
  need to construct a debt information system?
  Which are the outcomes?
• Ambition how much value can we add? Process
  should begin with basic framework other
  challenges can be developed over time.
• Training and dissemination for the countries to
  be able to report the templates, it is important
  to train specialists in the required concepts and
  to establish certain institutionalism of the
  templates in DMOs, so that the process can be
  continuous and sustainable.

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Objectives Efficacy and Efficiency

• Regional Public Debt System should be effective,
  meaning that it should add value. Avoid
  duplicating what other institutions (e.g. IFM)
  are already doing and enhance the methodologies
  currently available.
• The indicators produced should be relevant for
  the analysis of sovereign debt, from the point of
  view of the region, individual debtors,
  investors, credit rating agencies, and/or
  researchers.
• Quality is preferred over quantity
• Minimize the cost associated with the creation of
  such database and guarantee its sustainability.

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Lac Debt Group Activities. A Proposal

• A review of the work made and the current status
  of the project.
• Analyze on a case by case basis, the statistics
  that are regularly reported by each DMO.
• Identify what is needed and why it is needed.
• Select the level of detail that can be afforded
  under low cost.
• Reactivate the support of a consultant.
• Jointly develop more suitable template proposals.
  
• Consultant should not impose a methodology, he
  should help countries identify the most suitable
  one, according to their needs and their stages.
• Commitment and action through the establishment
  of partial goals and deadlines.

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Expected Outcomes

• Regional Public Debt System as a product that
  suites the most the regions' needs
• Combination of domestic and external debt using
  an established methodology to help comparison
  across countries
• Provide certain level of decomposition that
  allows analysis by category, staying in of the
  scope.
• Add value
• High participation from the region
• Strengthening of debt statistics
• Enhancement of the quality of debt indicators