Effective public debt management can reduce financial vulnerabilities, contribute to macroeconomic stability, preserve debt sustainability, and protect a government's reputation among investors. Volatility of interest rates, exchange rates, and debt flows require debt managers to properly assess risks and to mitigate them by relying on a diverse range of financing sources, while maintaining borrowing costs at low levels. The recent financial crisis has made the tasks of debt managers even more complex by increasing financing needs. Moreover, cost and risk characteristics of many financing options have changed, requiring a re-evaluation of existing debt management strategies.
The World Bank Group offers services and products, provides global expertise, and supports countries in strengthening their debt management capacity and institutions. A main function of the institution is to assist developing countries in strengthening their debt management performance through a range of diagnostic assessments designed to bolster governance and institutional frameworks. World Bank experts also provide assistance in formulating country-specific strategies for borrowing and repaying debt. These include the activities described below, as well as training and other outreach activities. The assistance is delivered upon country request and often in coordination with a select list of “implementing partners” – international and regionally-based institutions that have debt management expertise, including the Centre for Latin American Monetary Studies, the Debt Management Section (DMS) of the Commonwealth Secretariat, and the United Nation’s Debt Management and Financial Analysis System (DMFAS) Programme, among others.
In the cases of low-income countries that are eligible for financing under the criteria of the International Development Association (IDA), these activities are financed through the Debt Management Facility (DMF), a World Bank Group trust fund dedicated to strengthening debt-management capacity in developing countries.
A revised DeMPA tool (2015) comprises of five core areas, 14 DPIs and 33 dimensions, which are applied to evaluate the capacity of the sovereign borrower to manage the government debt portfolio.
This methodology is applied, starting July 2015.
The Medium-Term Debt Management Strategy (MTDS) provides a framework for formulating and implementing a debt management strategy for the medium term (approximately 3 to 5 years). It is primarily focused on determining the appropriate composition of the debt portfolio, taking into account macroeconomic indicators and the market environment. MTDS is useful for illustrating a government’s cost and risk tradeoffs associated with different debt portfolios and for managing the risk exposure embedded in each, in particular the potential variation in debt servicing costs and its budgetary impact. It helps countries explore the following questions: At what cost should our government borrow? How much risk should we take in borrowing? How should we structure our repayment to meet budget and development needs?
The MTDS was developed in partnership with the World Bank's Treasury Department and the International Monetary Fund. Technical assistance on the MTDS is driven by country demand and is generally implemented through a baseline and a follow-up mission, as well as a wide range of training activities. If financed under the DMF, MTDS mission are undertaken jointly with the IMF and, in general, with one of the DMFs implementing partners.
A Debt Management Reform Plan lays out a detailed, country-owned, capacity-building plan for policy and institutional reform, based on a comprehensive analysis of public debt management operations. The goal of the plan is to alleviate the weaknesses identified and analyzed by the DeMPA or through other assessments. It details expected outputs and outcomes, actions, sequencing and milestones. It also provides an estimate of budget and resources required to implement the plan.
Technical assistance on the Debt Management Reform Plan is driven by country demand. If financed under the DMF, Debt Management Reform Plan missions are in general implemented with the DMF's implementing partners. Training on Debt Management Reform Plan missions is generally provided in the context of DeMPA workshops.
Although Debt Management Reform Plans are country-specific and vary considerably depending on the prevailing circumstances of the country, guidelines have been developed that foster a consistent approach and process for working with client countries.
DMF Stakeholders' Forum
In May 2007, the Boards of the Executive Directors of the World Bank and the International Monetary Fund endorsed a public debt management program with a focus on strengthening frameworks and capacity in low-income countries. In November 2008, the DMF for Low-Income Countries was launched to provide grant-based technical assistance on debt management to developing countries. The work under the DMF aims to strengthen debt management capacity and institutions via the supply of global public goods as well as to facilitate knowledge sharing and coordination among debt management providers.
The launch of the DMF coincided with one of the most acute turbulences in global financial markets since the Great Depression. In an environment of tight financing conditions in international financial markets, many countries experienced a sizeable reduction in capital flows and elevated rollover risks. There was worry that these stringent financial conditions might lead to a wave of sovereign debt problems around the world. The DMF Stakeholder's Forum is designed to address the specific challenges in debt management faced by low-income countries.
Invitees to this annual forum include international and regional technical assistance (TA) agencies, private sector TA providers, decision makers and debt managers from developing countries, representatives of civil society organizations, as well as bilateral donors and staff from multilateral development banks.