Annual Meeting of INTOSAI Public Debt Working Group Nadi, Republic of Fiji Islands July 24-25, 2008 RECOMMENDATIONS ON XIX INCOSAI THEME 1 “MANAGEMENT, ACCOUNTABILITY AND AUDIT OF PUBLIC DEBT” Mr. Richard Domingue Director, Finance and Economics Office of the Auditor General of Canada

XIX INCOSAI Mexico City November 5-10, 2007 “Management, Accountability and Audit of Public Debt” Theme I “Management, Accountability and Audit of Public Debt” Theme Officers: – Chair: Germany – Vice-Chair:Canada – Moderator:UK / Brazil – Rapporteur:Venezuela / China – Substitutes: Zambia / Yemen

THEME RELEVANCE High public debt levels impose severe constraints on financial policies. Public debt: gradually become more serious (in some cases it represents over 100% of GDP). Intergenerational burden-sharing. XIX INCOSAI – Paved the way for analysis and discussion on SAI’s responsibilities. – Recognition to PDWG’s valuable work since 1991

INTRODUCTION Trend of indebtedness is worrying. Gap Revenues vs. Government Spending is closed by continuous public borrowing. Implicit debt will be a major burden on the sustainability of public budgets. High debt level & sub-optimal debt structure: – Vulnerability, – Currency devaluation, – Economic and social crises. – Negative impact on the scope of fiscal policy decisions. Democratic government requires that public debt and its medium- and long-term effects be made transparent.

SAI’s TASKS Despite of different mandates, it is possible to formulate principles for the work of SAIs. Audit of Public Debt: – Internal administrative issues – Budgetary and fiscal environment – Interrelations between public debt, fiscal markets & creditors – Medium and long-term sustainability of public finance. Comprehensive SAI’s scope: – Regularity of government operations – Sound funding of public expenditure from borrowing – Risks management – Approach on economy, efficiency and effectiveness of credit- financed measures, & Benefits for future generations

XIX INCOSAI Recommendation 1 In order to ensure transparency, SAIs should: Play a proactive role in auditing public debt and debt management; The extent to which an SAI can do this would depend on its mandate, its responsibilities and the specific circumstances of its country; Audit work can also include timely and full reporting to Parliament about the impacts and risks inherent in debt management and the financial system; Reliable data are an essential prerequisite for transparency.

XIX INCOSAI Recommendation 1 – SAIs’ ACTIONS Active role – Debt policy and debt management systems must be well designed, Timely and full information on implications and risks to parliament. Encourage governments to give priority to risk management – Contingent liabilities – Implicit debt Publication of information to help governments assess the risk associated. Examination of financial service regulators’ compliance with regulatory standards. Assessment of administration’s core skills in debt management.

XIX INCOSAI Recommendation 2 Within their national legal framework, SAIs should further develop their audits of public debt by ensuring full disclosure of public debt and public assets.

Advise government on how to record and report the level of debt and the status of assets, Evaluate the national trend of indebtedness and the national status of assets; Evaluate capital expenditure – Development of public assets vs. public debt; Further develop or follow standards for recording and evaluating public assets and public debt. XIX INCOSAI Recommendation 2 – SAIs’ ACTIONS

XIX INCOSAI Recommendation 3 implicit public debt SAIs should, within their mandate and national legal framework, monitor the development of implicit public debt and provide timely information on potential implications of a high or strongly rising implicit public debt level.

Monitor the development of implicit public debt, Influence the government to identify and disclose the amount of implicit debt – Special focus: expenditure for social policy programmes. Consider the amount of future recurring costs caused by government actions, Influence the government to take appropriate steps for coping with implicit public debt. XIX INCOSAI Recommendation 3 – SAIs’ ACTIONS

XIX INCOSAI Recommendation 4 SAIs should consider conducting performance audits of public debt and debt management as a key objective. This could include examining the impacts of budgetary decisions, identifying and assessing risks and reporting on their potential implications.

Analysis of the cost of borrowing and the risks of debt management when carrying out performance audits; Consideration on forecasts of interest expenditures; Promotion in the development of long-term fiscal indicators. XIX INCOSAI Recommendation 4 – SAIs’ ACTIONS

XIX INCOSAI Recommendation 5 When auditing public debt, SAIs should ensure that their staff have the requisite skills and expertise, and where appropriate, that SAIs have access to specialized knowledge. Because of the complex audit challenges in ever changing environments that require initial and continued staff training programmes, SAIs should ensure an adequate adjustment of organizational structures in order to accomplish their objectives.

Experienced auditors to public debt and debt management work; Auditors possessing expert knowledge in economics and business administration; May temporary reliance on external expertise sustainably enhance audit findings? Staff training to the rapidly changing situation on the money and capital markets; Organisational structures adapted to better meet changing needs in auditing public debt. XIX INCOSAI Recommendation 5 – SAIs’ ACTIONS

XIX INCOSAI Recommendation 6 SAIs should enhance their expertise to assess implications and risks of new financial instruments.

Enhance SAI’s expertise to assess market, interest-rate, credit, liquidity and operative risks in public debt management; Examine the indicators for the vulnerability of public budgets and financial management Assessment of the scope for the management of assets and debts; Monitor the use of new financial instruments; Staff selected: adequate practical experience and continual training in the field of financial innovations. XIX INCOSAI Recommendation 6 – SAIs’ ACTIONS

XIX INCOSAI Recommendation 7 The INTOSAI’s Working Group on Public Debt should continue to make significant contributions towards further developing the audit of public debt and its management. The Working Group should adjust its activities continuously in response to any new arising challenges.

Further enhance its profound expertise in auditing public debt and public debt management, Develop standards for audit and assessment, Operate a network for continually sharing information on lessons learned, audit methods and pertinent publications, Discussions and sharing expertise between SAIs and international organisations; Exchange of expert staff among the SAIs, Support to training of auditors for auditing public debt and its management. XIX INCOSAI Recommendation 7 – SAIs’ ACTIONS

Annual Meeting of INTOSAI Public Debt Working Group Nadi, Republic of Fiji Islands July 24-25, 2008 RECOMMENDATIONS ON XIX INCOSAI THEME 1 “MANAGEMENT, ACCOUNTABILITY AND AUDIT OF PUBLIC DEBT” Mr. Richard Domingue Director, Finance and Economics Office of the Auditor General of Canada