The Debt Management Facility for Low-Income Countries

Doerte DoemelandActing Program Manager DMF

Economic Policy and Debt DepartmentThe World Bank

Outline

I. The Debt Management Facility for LICs

II. Debt Management Performance Assessment (DeMPA)

III. Medium-Term Debt Management Strategy (MTDS)

IV. Other DMF activities

V. Conclusion

I. The DMF for LICs

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What is the DMF?

• The Debt Management Facility (DMF) for low-income countries is a multi-donor trust fund, that

– provides grant-based technical assistance (over an initial four-year operational period),

– with a view to strengthen debt management capacity and institutions,

– via the supply of “global public goods” (knowledge tools) and the delivery of technical assistance, while facilitating knowledge sharing and enhancing coordination among different debt management providers.

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What is the DMF?

• The DMF focuses on low-income and IDA-only countries.

• Its work program is demand-driven.

• Most activities financed under the DMF are implemented in collaboration with Implementing Partners, including CEMLA, Commonwealth Secretariat, DRI, DMFAS Programme of UNCTAD, MEFMI, Pôle Dette and WAIFEM.

• Systematic application of the Debt Management Performance Assessment (DeMPA);

• Country-led design of medium-term debt management strategies (MTDS) jointly with the IMF;

• Design of reform programs;

• Training events;

• Research and development of knowledge products;

• Peer learning initiatives, such as the Debt Management Practitioners’ Program and the Debt Managers’ Network.

Activities financed under the DMF

II. DeMPA

What is DeMPA ?Analytical tool with following attributes:

The Performance Indicators

Governance and Strategy Development

DPI-1 Legal Framework

DPI-2 Managerial Structure

DPI-3 Debt Management Strategy

DPI-4 Evaluation of Debt Management Operations

DPI-5 Audit

Coordination with Macroeconomic Policies

DPI-6 Coordination with Fiscal Policy

DPI-7 Coordination with Monetary Policy

Borrowing and Related Financing Activities

DPI-8 Domestic Borrowing

DPI-9 External Borrowing

DPI-10 Loan Guarantees, On-lending and Derivatives

Cash Flow Forecasting and Cash Balance Management

DPI-11 Cash Flow Forecasting and Cash Balance Management

Operational Risk Management

DPI-12 Debt Administration and Data Security

DPI-13 Segregation of Duties, Staff Capacity and Business Continuity

Debt Records and Reporting

DPI-14 Debt Records

DPI-15 Debt Reporting

Example of dimensions within PI

Dimension Score1. Effectiveness of forecasting the aggregate level of cash balances in government bank accounts. 2. Effectiveness of managing the aggregate cash balance in government bank account(s), including the integration with the domestic debt borrowing program. 3. Where the Principal DeM Entity or the DeM entities operate their own bank accounts, the frequency of reconciliation of these bank accounts .Overall Score

DPI - 11

DeMPA’s scoring method

Scoring method - (A to D)

i) Meet minimum requirement = Score C Important for effective debt management

ii) Absence of minimum requirement = Score D Signals an area of priority attention

iii) Sound practice = Score A (B intermediate for more granularity)

iv) Not rated – if process/system does not exist (e.g., derivatives)

Swaziland (RO)

Honduras (RO)

Moldova

CAR (RO)

FY07 (5)

Ghana

Burkina Faso (RO)

Mali (RO)

The Gambia (Pilot)

Albania (Pilot)

Nicaragua (Pilot)

Guyana (Pilot)

Sao Tome Principe(RO

Zambia

Rwanda (RO)

Guinea (RO)

Nigeria (RO)

Cameroon (RO)

Malawi (Pilot)

Mongolia

Bangladesh

Togo

Mozambique

Congo, Brazza (RO)

Solomon Islands

Cape Verde

Grenada

ST Kitts & Nevis

Uganda

Burundi

Liberia

Pakistan

FY08 (13)

FY09 (14)

DeMPA has been implemented in 32 countries so far

Congo, DRC

Cote d’Ivoire

Antigua and Barbuda

FY10

Pipeline

Ethiopia

Sierra Leone

Yemen

Samoa

Tonga

Technical Assistance Road Map

Possible follow-ups

Training/TA examples

Preliminary Results

III. MTDS

What is the MTDS?

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A

D

E

CB

Initial P

lan phase 1Contingency 1

Initial Plan phase 2C

ontingency 1

Start

Final destinationNote: plans are made subject to constraints (navigation skills, weather conditions and forecast, ship size, etc.)

“Go with the tides and wind”

Why an MTDS?

Still, DeMPA results indicate that only 4 out of 27 assessed countries had a satisfactory medium-term strategy in place

The MTDS has so far been implemented in 6 countries

Cameroon (P)

Ghana (P)

Bangladesh (P)

Nicaragua (P)

Kenya

Moldova (P)

FY08 (4) FY09 (2)

Malawi

Tanzania

Zambia

Cape Verde

Nigeria

FY10 Pipeline

The Eight Steps of an MTDS

I. Identify objectives for public debt management and scope of the strategy

II. Analyze the cost and risk of the existing debtIII. Identify and analyze potential funding sourcesIV. Identify baseline projections and risks in key

policy areasV. Review key longer-term structural factorsVI. Assess and rank alternative strategies on the

basis of the cost-risk trade-offVII. Review candidate strategies with fiscal and

monetary policy authoritiesVIII. Submit and secure agreement on the MTDS

Step III. Identify and analyze potential funding sources

• Concessional vs. commercial external borrowing

• Access to international capital markets? At what cost?

• Potential demand for government paper?

Determine the range of strategies that might be feasible and desirable.

Step IV. Identify baseline projections and risks in key policy areas

Step V. Review longer-term structural factors

Objective is to identify :

• baseline projections of key fiscal, monetary policy, external, and market variables;

• the key risk to these projections;

• a set of comprehensive risk scenarios;

• any other factors that are relevant for an MTDS formulation.

Longer-term structural factors could include:

• Commodity dependence and associated vulnerability to development in commodity prices;

• Longer-term prospects of continued access to concessional finance.

Step VI. Assess and rank alternative debt management strategies on the basis of the

cost-risk trade off

• Identify set of relevant strategies;

• Assess, using the AT, the costs and risk of these alternative strategies.

S1

S2

S3S4

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20%

Risk (max Δ from baseline after shocks)

Cost (i/GDP)

IV. Other DMF Activities

Training in FY10

DeMPA

• One DeMPA training at the JVI

• One regional DeMPA workshop for country authorities in Asia

• One DeMPA Workshop at the World Bank

MTDS

• A training for trainers seminar for MTDS at the JVI

• One regional MTDS workshops in Africa

• One regional MTDS workshop in LAC

Other Outreach Events

• The Debt Management Practitioner’s Program which enables officials from debt management offices to join PRMED Bank Staff for 3-month assignments;

• The Debt Managers’ Network, designed to provide a platform for peer learning on technical issues, especially for African debt managers;

• The Annual Stakeholder’s Forum to bring together public and private sector stakeholders.

V. Conclusion

• Results from DeMPA missions clearly highlight large gaps in PDM frameworks and capacity in developing countries.

• Moreover, the current crisis underscores the urgency for improving PDM in many countries.

• Thanks to the DMF, the scaling up of World Bank’s technical assistance for strengthening PDM has come at the right time.

• Going forward, the World Bank will not only further leverage the dissemination of existing tools, but it will also continue to develop new tools and facilitate knowledge sharing with a view to foster coordination among debt management TA providers.

Conclusion