Guidelines for Public Debt Management : Background and Purpose

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Developing Government Bond Markets in Sub-Saharan
Africa
month 2003

• Guidelines for Public Debt Management
  Background and Purpose
• Pierre Yourougou
• Banking and Debt Management Group
• Treasury, The World Bank
• Johannesburg, South Africa
• June 17 -19, 2003

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Outline of the Presentation
June 2003

• Background and Purpose of the Guidelines
• What is Public Debt Management and why it is
  Important ?
• Background of the Guidelines
• Purpose of the Guidelines
• The Guidelines
• Examples of Sound Practice for LICs and HIPCs

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What is Public Debt Management ?
June 2003

• The process of establishing and executing a
  strategy for managing the governments debt to
• raise the required amount of funding
• achieve its cost and risk objectives
• meet any other objectives, such as developing the
  domestic debt markets

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What is Public Debt Management ? (2)
June 2003

• Debt management goals differ from those for
  fiscal and monetary policy, although there exists
  significant interdependence among them
• Fiscal policy determines the amount of debt while
  debt management involves its composition
• Debt issuance for monetary purposes vs. issuance
  to create and maintain a deep and liquid market

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Why is Public Debt Management Important?
June 2003

• Public debt portfolio can be large and may pose
  substantial risk to the governments balance
  sheet and the countrys financial stability
• Portfolio often the largest in the country and
  the most complex
• If not managed prudently, poses risk to the
  budget and can lead to risk of default and large
  economic losses
• Poor debt management practices
• can undermine investor sentiment and spark
  financial instability
• Can increase a countrys susceptibility to
  crisis, particularly for countries that are
  vulnerable because of high debt levels or are
  susceptible to external shocks

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Why is Public Debt Management Important? (2)
June 2003

• Sound debt management can lower long-term
  borrowing costs for government and other domestic
  borrowers by
• Establishing liquid benchmark issues and reducing
  the liquidity premium
• Promoting depth and liquidity in the domestic
  bond markets
• Establishing pricing benchmarks to enable other
  market participants to form contracts and price
  risks

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Why is Public Debt Management Important? (3)
June 2003

• Good debt management makes countries less
  susceptible to contagion and financial crises
• There are limits to what sound debt management
  can achieve
• Debt management is not a substitute for sound
  fiscal, monetary, and exchange rate policies

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Background of Guidelines
June 2003

• Requested by the Financial Stability Forum, then
  by the IMFC to help countries reduce their
  vulnerability to economic and financial shocks
• Prepared by staff of the World Bank and IMF with
  input from debt management experts in over 30
  countries and benefited from comments through 5
  regional outreach conferences
• Final guidelines endorsed by World Bank and IMF
  Boards then by IMFC at Spring 2001 meeting
• Accompanying document prepared to illustrate how
  countries conduct debt management in accordance
  with the Guidelines

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Purpose of Guidelines
June 2003

• Designed to help policymakers build their
  capacity to strengthen the quality of their debt
  management and reduce country vulnerability
• Encompass both domestic and external debt, and
  contingent liabilities
• Focus on areas of agreement for sound practice
• Intended to assist in capacity building, not to
  serve as minimum standard
• Necessarily general need to be applied with
  flexibility, depending on each countrys
  circumstance