The primary 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, but it can also be critical to macro-financial stability and to financial sector development. A debt management strategy (DMS) is a plan for the evolution of the public debt portfolio that operationalizes the debt management objectives given the constraints, and specifically the government’s preferences with regard to cost-risk trade-offs. A DMS should thus have a strong focus on managing the risk exposure embedded in the debt portfolio, and notably the potential variations in the cost of debt servicing. A DMS is one, guiding component of public debt management, which involves also tactical decisions, and coordination with other public sector policies. Debt managers are responsible for ensuring that financing constraints do not lead to sharp reversals in fiscal policy or spikes in interest costs. Thus, sound debt management contributes to reduced macro-financial risks, complementing prudent fiscal management and monetary policy implementation. Debt management contributes also to market and institutional development.
The World Bank and the IMF have developed a framework to guide country authorities in the process of a developing a DMS. The Medium-Term Debt Management Strategy (MTDS) framework consists of a methodology and associated analytical tool (AT) to facilitate sound debt management. The framework seeks to help countries develop a DMS that explicitly recognizes the relative costs and risks of alternative financing choices; takes into account the linkages with other key macroeconomic policies; is consistent with maintaining debt sustainability; and facilitates domestic debt market development. The main components addressed by the MTDS framework include: 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.
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.