FEATURE STORY

Assessing Debt Management Performance – Why It Is Important

June 16, 2015

The analysis and management of a country’s debt portfolio are critical not only for maintaining macroeconomic stability. They also mobilize long-term resources for the country’s development and help create the building blocks for a domestic money market. As global liquidity is once again tightening, it is imperative for developing countries to gain and maintain the trust of investors, both international and domestic. 

What were the main insights gained from the Debt Management Assessments (DeMPAs)?


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Chart 1: Evaluation of DM strengths and weaknesses 
Key: A = best performance; B = intermediate / good performance; C = minimum requirements are met; D = minimum requirements are not met; N/R = not rated


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Chart 2: % of countries passing DeMPA minimum requirements


Cross country comparison of the debt management performance evaluations (DeMPA) show that, on average, more than half of the aspects of sovereign debt management across all countries assessed do not comply with the minimum standards of sound practice in the core areas of debt management by the central governments. (Chart 1) 

Particularly lacking is performance in the areas of cash flow management and forecasting as well as the coordination with debt management. In other words, we see examples when countries issue new debt while having a lot of cash in public accounts, thus contributing to an inefficient use of funds. Another area of significant concern lies in operational risk management for government debt. Insufficient risk management can often mean significant exposure to the loss of data and other failures in implementation of critical debt management processes.

On the positive side, performance is better over time when it comes to the coordination with macroeconomic policies and improvements of the legal framework for debt management. Also, debt managers across the regions are paying more attention to sound borrowing policies. Their analytical capacities regarding portfolio management have been improved, including through development of the medium term debt management strategies. (Chart 2)

What needs to be done?

Debt management is a complex yet crucial reform area. Support provided by the World Bank and its partners helps governments around the world deal with this challenging task. We continue to assist countries in identifying the strengths and weaknesses of their government debt management processes and institutions. A stronger commitment to sound fiscal policy performance and push for implementation of designed debt management reforms domestically is needed for the lasting success of the technical assistance, provided by the WB in cooperation with the IMF and other partners. 


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