Strengthening Debt Management Practices: Lessons from Country Experiences and Issues Going Forward A Joint Paper Prepared by the World Bank and IMF

1
Strengthening Debt Management Practices Lessons
from Country Experiences and Issues Going
ForwardA Joint Paper Prepared by the World Bank
and IMF

• Phillip Anderson
• World Bank Treasury

2
Background

• 2001 Guidelines for Public Debt Management
  (Revised 2003)
• 2003 Accompanying Document to the Guidelines for
  Public Debt management
• 2002 Launch 12 Country Pilot Program
• 2007 Publication of Managing Public Debt From
  Diagnostics to Reform Implementation and
  Developing Domestic Government Debt Market From
  Diagnostics to Reform Implementation
• 2007 Joint Bank-Fund Board Paper

3
Risk reduced in many middle income countries
(MICs)

• Study of sovereign debt in 18 emerging market
  countries
• Reduced currency risk
• Average external debt fell to 10 GDP in 2004,
  from 16 in 1999
• Latin America and Emerging Europe share of
  external declined from 40 to 30 of total debt
  stock
• Reduced rollover and interest rate risk
• 13 / 18 saw short term domestic debt decline as a
  proportion of total domestic debt
• Latin America medium-long term fixed-rate debt
  increased from around 10 to 20 of domestic debt
  (Asia over 80)
• International bond issues average maturity
  increased from 8 13 years between 2001 and 2005
• Source IMF April 2006 Global Financial Stability
  Report

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Reduced share of external debt
5
Progress in debt management in MICs, but
challenges remain

• Developing medium-term debt management strategies
  
• Coordinating with other macroeconomic policies
• Improving governance arrangements and capacity
• Developing the domestic government debt market

6
Low-income country (LIC) context and challenges

• Concessional flows generally more important than
  market finance
• Borrowing space created by HIPC/MDRI must be
  managed carefully to avoid reaccumulation of
  unsustainable debt
• Most countries remain at an early stage in
  defining comprehensive medium-term debt
  management strategies
• Greater vulnerability and institutional and
  capacity constraints
• Fewer tools to manage risk

7
Insights on designing and implementing a reform
program

• Country ownership and commitment to reform is a
  precondition
• Comprehensive diagnostics necessary prior to
  undertaking reform including links with
  macroeconomic framework
• Embodying PDM reform in broader projects can
  improve chances of success in implementation
• Coordination with other organizations and
  governments have improved the quality of PDM
  technical support

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The case of Kenya

• Failure to sustain capacity building efforts
  (1985-2003)
• Turning point Government request of World Bank
  support (2003) and Anglo Leasing affair (2004)
• Reform implementation (2004-)
• Staff increase from 5 to 24 officials
• Organized according to FO, MO and BO functions
• Domestic and external debt database has been
  migrated and updated on CS-DRMS 2000
• Debt data reconciled against loan contract and
  validated
• Back office and its internal procedures have been
  strengthened
• A comprehensive Annual Debt Management Report has
  been published, including an initial debt
  management strategy
• Debt management department has its own website

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World Bank support for public debt management

• Treasury to continue focus of support for MICs,
  PRMED to support LICs
• Build on insights gained from the pilot program
  and other country work
• Work in close coordination with each other and
  with department responsible for domestic debt
  market development
• Regular coordination with IMF and other providers
  of assistance
• Bank to focus on long term institutional
  development, capacity building, and knowledge
  transfer
• IMF to focus on its role in helping countries
  prevent macroeconomic and financial crises

10
World Bank support in debt management work
program

• Support for MICs
• Country work engagements in 28 countries over
  past 5 years (policy of cost recovery for
  follow-up work)
• Training, research and outreach
• Due diligence and support for countries using
  IBRD banking products
• Support for LICs
• Program to measure debt management performance
  through standardized PDM indicators (DeMPA)
• Jointly with the IMF, develop LIC capacity to
  design and implement medium-term debt strategies
• Training and outreach program to be developed