BRIEF

Medium-Term Debt Management Strategy (MTDS)

March 18, 2019

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Highlights
  • The Medium-Term Debt Management Strategy (MTDS) framework and its supporting analytical tool is designed to assist country authorities in developing a sound debt management strategy (DMS)
  • The steps comprising in the MTDS framework can be used to identify the factors that need to be considered in developing a DMS, and to link the DMS to the wider policy framework
  • The MTDS analytical tool helps to analyze the cost and risk tradeoffs inherent in a government’s financing choices

Introduction

The aim of debt management is to raise the required amount of funding at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk.

A debt management strategy (DMS) sets out how the government intends to borrow and manage its debt to achieve a portfolio that reflect its cost and risk preferences, while meeting financing needs. A DMS guides debt management decisions and on-going operations. Such a strategy is critical to helping a government manage the risk exposures arising from its debt portfolio, particularly variations in debt servicing cost and roll-over risk. Moreover, the implementation of a sound DMS can help reduce macro-financial risks, support fiscal policy, complement prudent monetary policy implementation, and contribute to financial sector development by supporting the development of a functioning government securities market. Therefore, the design and implementation of a DMS requires strong coordination with other public sector policies.

Together, the World Bank and the IMF have developed a framework to guide country authorities in the process of a developing a DMS, namely, the Medium-Term Debt Management Strategy (MTDS) framework. The framework seeks to help countries in the development of a strategy that incorporates key linkages with macroeconomic policy; is consistent with maintaining debt sustainability; and facilitates domestic debt market development.

The MTDS framework consists of an eight-step methodology, supported by an analytical tool (AT), which enables governments to assess the potential cost and risk trade-offs they may face under different debt management strategies. The MTDS framework covers: the objectives and scope of debt management; the characteristics of the existing debt portfolio and the identification of risk priorities; the sources of potential domestic and external financing; the macroeconomic framework and structural factors; baseline pricing assumptions and shock scenarios; and the comparison of alternative funding strategies based on estimates of cost and risk.

Delivery

A large volume of technical assistance has been delivered and resources deployed within the context of the MTDS framework. There have been over 100 WB and IMF technical assistance missions on MTDS since 2008, supported by the DMF. Also with DMF support, the bilateral technical assistance missions have been complemented by regional, international, and on-line training on the MTDS. In many instances, the delivery has been with other development partners, broadening the pool of trainers.

An updated assessment of WB and IMF efforts to help countries develop capacity in formulating and implementing medium-term debt management strategies has been provided in a recent report by the World Bank Group and the IMF – The Medium-Term Debt Management Strategy (MTDS): An Assessment of Recent Capacity Building - looks at the 10 years of MTDS and how it has been adapted to function in a more complex international environment.


MTDS Resources

The MTDS toolkit includes: (i) a Guidance Note which describes the process of designing and implementing a debt management strategy; (ii) an Analytical Tool which can be used for the cost-risk analysis; (iii) a user guide, and (IV) a data preparation manual which complements the Analytical Tool.

Guidance Note:

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