Introduction and Overview UNCTAD, World Bank and IMF Workshop Geneva, February 06-10 2017

MTDS Overview

What is debt management? “Public debt management is the process of establishing and implementing a strategy for managing debt to achieve the government’s financing, risk, cost objectives and other goals, such as developing the domestic debt market” -Guidelines for Public Debt Management: IMF/World Bank, 2001

Debt Management matters for development Accessing finance Ensures resources available for public investment needs Managing cost Influences availability of resources for other priorities Debt Management Managing risk Influences the realism of Government budgets and plans Developing domestic debt markets Influences development of the financial sector and broader costs and access to finance

MTDS is one part of a complex picture Debt management and debt sustainability Debt management DeMPA (process) MTDS (debt composition) Long term debt sustainability DSF (debt level)

Debt Management is Distinct From Fiscal Policy Debt Sustainability Analysis Required primary balance for sustainability Medium-Term Debt Strategy Cost and risk of different financing options – with a given primary balance Fiscal Policy Debt Management Aggregate government spending and taxation Microeconomic impacts of tax and spending policies Structure of debt Cost and risks of debt portfolio

Debt Management is Distinct From Fiscal Policy Cost and risk of debt portfolio Fiscal Policy Debt Management Aggregate government spending and taxation Microeconomic impacts of tax and spending policies Structure of debt Cost and risks of debt portfolio Fiscal Risks Primary balance and financing need

A document outlining how the Government will achieve it’s financing goals while achieving an appropriate balance between cost and risk, and supporting secondary objectives such as development of the domestic debt market. - Analytically informed, typically including quantitative benchmarks or targets

IMF/World Bank Guidance Note A document outlining how the Government will achieve it’s financing goals while achieving an appropriate balance between cost and risk, and supporting secondary objectives such as development of the domestic debt market. - Analytically informed, typically including quantitative benchmarks or targets IMF/World Bank Guidance Note Inputs Macro assumptions Shock scenarios Existing debt portfolio Strategies for new borrowing The Analytical Tool Iterative simulations within an excel-based model Outputs Cost and risk of existing strategy Cost and risk estimates of potential alternative debt strategies

Output Analysis Interest and exchange rate scenarios Potential financing strategies Financing Need Existing debt Analysis Output Size and composition of debt stocks and flows Cost and risk indicators Redemption profile

8 Steps of MTDS

The 8 Steps One Two Three Four Objectives and scope of the strategy Cost and risk of existing debt Three Potential sources of finance Four Medium-term macro-policy and market environment Five Broad structural factors and risks Six Analysis of alternative debt management strategies Seven Review with fiscal, monetary and market authorities Eight Propose and approve strategy Broad structural factors and risks Analysis of alternative debt management strategies Review with fiscal, monetary and market authorities Propose and approve strategy

Step 1: Objectives & Scope Identify main objectives for public debt management and the scope of the medium term debt management strategy Outputs Description of the overall objectives for public debt management Definition of the types of debt to be covered by the strategy

Step 2: Costs and Risks of Existing Debt Objectives Outputs Identify current debt management strategy Detailed information on outstanding debt Identify outstanding debt and its composition Debt servicing profile of outstanding debt Calculate basic cost and market risk indicators Description of main portfolio risks

Step 3: Potential Instruments and Characteristics Objective Identify potential sources of finance, their financial characteristics including cost and risk parameters Output List existing and potential instruments, domestic and external. Describe financial characteristics Evaluation of the potential of annual borrowing in each instrument Discussion/ranking of the instruments based on cost/risk characteristics

Step 4: Macro and Market Environment Objectives Identify baseline projections for key fiscal and monetary policy variables, market rates, mains, and the relevant constraints and implications for MTDS formulation Output Baseline projections for key fiscal, monetary policy and market variables A clear and comprehensive set of country specific risk scenarios to be tested

Step 5: Review Key Longer-Term Structural Factors Objective Review structural factors that will potentially influence the desired direction of the MTDS over the longer-term Output Identify long-run structural factors that the MTDS should take into account Commodity price vulnerability Macro vulnerabilities created by the debt composition Change in access to concessional financing as income levels grow

Step 6: Analysis of Strategies Objectives Identify and analyze possible debt management strategies, assess performance, and chose preferred debt management strategies Outputs Comparison of feasible debt compositions, identifying preferences relative to objectives Comparison of cost and cost-range implications of debt management strategies Identify the preferred, and a few alternative strategies

Step 7: Review with Other Agencies Objectives Ensure that relevant feedback from the strategies identified is provided by the fiscal and monetary policy authorities Review the potential debt market implications of the strategies Output A clear assessment that the candidate strategies are consistent with fiscal and monetary policies, maintaining debt sustainability, and in line with plans for market development

Step 8: Propose and Approve the Strategy Objective Present the preferred and alternative strategies to the highest responsible authority Propose the preferred strategy for approval Output A document describing the preferred strategy, as well as a few alternatives (“MTDS report”) A clear description of the key associated costs and risks, and relationship with the broad objectives

Dissemination and Implementation

Dissemination is vital Commitment Gain commitment of key stakeholders Ensures consistency in ongoing DM decision making Ensures market understanding of Government intent Certainty and Confidence Dissemination Establishes benchmark against which to evaluate outcomes Accountability Improves the quality of the debate Strengthens analysis and (consequently) improves outcomes Analysis

MTDS implemented through borrowing plan Specific instruments and timeframes Market Development Strategy

Implementation will highlight key bottlenecks Shallow domestic debt markets Weaknesses in primary market operations Potential conflicts with monetary policy framework Limited availability of concessional financing