setting policies in good times revisiting policies in bad times · 2016-10-23 · setting policies...
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Setting Policies in Good Times Revisiting Policies in Bad TimesComplementarity of Fiscal, Monetary and Debt Policy
David Lezhava, Deputy Minister of Finance of Georgia
For the World Bank's Annual Stakeholders' Forum of the Debt Management Facility
June 3-4, 2015
Manila
Outline
Central Bank’s Monetary Policy
Debt Policy of the Ministry of Finance
Policy debate under the External Shock
2
Monetary Policy
Monetary Targeting
– Main instrument: NBG Certificates of Deposits (since 2006)
Inflation Targeting
– Main instrument: one-week refinancing loans (since 2008)
3
External Public Debt Portfolio Average Weighted: - Interest Rate 1.9%- Contractual Maturity 23 years
Affordable Public Debt Stock and Very Low Interest Rate on External Public Debt
External Public Debt by Interest Type: Interest Rate Risk Brought to a Minimum
4
Currency Composition The Five Biggest Donors ( ml USD)
Domestic26%
Multilateral 51%
Bilateral 14%
Eurobond9%
External74%
Fixed74%
Variable26%
USD31%
EUR17%
SDR48%
Other4%
WB, 1,771
ADB, 605 KfW, 296
EIB, 242
IMF, 212
Others, 1,074
Public Debt Performance
Greater Focus on Domestic Borrowing
MOF has been issuing T-bills since 2009 .
In addition with T-bills MOF is issuing 2,5 and 10 years T-notes
5
12 - month27%
2 - year33%
5 - year32%
10 - year8%
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012 2013 2014 2015 pr
mln
GEL
6 month 12 month 2 year 5 year 10 year
Why is coordination important?
There are no conflicting actions;
Joint efforts aiming at specific issues mightyield better results;
Increases credibility in policies.
Coordination
the Central Bank and the Ministry of Finance
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Shared Policy Priorities that Benefit All
Inflation targeting is the most appropriate monetary policy ER flexibility
Inflation is the major (if not the only) task
Refinancing is the main instrument
Transmission mechanism needs to be improved
Share of domestic debt has to increase Lower risk, lower price
Capital markets development
Growth supportive fiscal policy Long term local currency lending support program
8
Long term local currency lending support
program
9
MOF issues government paper
Commercial Banks buy government paper on
the Auction
Money
Deposits +1%
CBs use government paper as a collateral and get loan
from the NBG
MOF and NBG coordination: T-bills and CDs
NBGMOF
2006
2016*
Started issuing 3 and 6 months CDs
NBG to stop 6 months CDs
NBG to phase out CDs and build Treasuries Portfolio
MOF to start issuing 6 months T-bills
Started issuing T-bills 2009
2018* NBG to stop CDs and move to classical OMOs
MOF to gradually continue issuing more debt
MOF the only issuer of public debt
* Note: these are currently under discussion
2010 Started issuing T-notes
All is Fine in Good Times
End of Part 1
To be continued…
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External Shock
Export percentage change (YOY) Remittances percentage change (YOY)
12
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Jan-14 Feb-14 Mar-14 Api-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Api-15
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
Jan-14 Feb-14 Mar-14 Api-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Api-15 May-15
ER (GEI/USD)
crises line
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
IV 13 I 14 II 14 III 14 IV14 I 15
GDP growth
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
crises line
Policy reaction at EX shock
Excessive local currency is considered to be in fault
MOF’s tightening didn’t led to desired outcome
MOF ceased Long term local currency lending support program
NBG spent 10 % of the country’s foreign exchange reserves without any
effect
NBG has decreased size of CD auctions
NBG has increased refinancing rate from 4 to 5 %, without any noticeable
effect
13
Coordination in Bad Times
14
Policy reaction on EX shock
Values depreciated in parallel with local currency
NBG refinancing volumes raised questions
Large volume of treasury securities raised questions
MOF program Long term local currency lending support was blamed
15
Lessons learned
When planning in good times be aware of bad times;
Critical mass of professionals needs to be involved;
IFIs play important role.
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Thank you!
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