Guidelines for Public Debt Management : Background and Purpose Pierre Yourougou Banking and Debt Management Group Treasu

1. Developing Government Bond Markets in Sub-Saharan Africa month 2003 Guidelines for Public Debt Management : Background and Purpose Pierre Yourougou Banking and Debt Management Group Treasury, The World Bank Johannesburg, South Africa June 17 -19, 2003

2. June 2003 Outline of the Presentation • Background and Purpose of the Guidelines • What is Public Debt Management and why it is Important ? • Background of the Guidelines • Purpose of the Guidelines • The Guidelines • Examples of Sound Practice for LICs and HIPCs

3. June 2003 What is Public Debt Management ? The process of establishing and executing a strategy for managing the government’s debt to: • raise the required amount of funding • achieve its cost and risk objectives • meet any other objectives, such as developing the domestic debt markets

4. June 2003 What is Public Debt Management ? (2) Debt management goals differ from those for fiscal and monetary policy, although there exists significant interdependence among them: • Fiscal policy determines the amount of debt while debt management involves its composition • Debt issuance for monetary purposes vs. issuance to create and maintain a deep and liquid market

5. June 2003 Why is Public Debt Management Important? • Public debt portfolio can be large and may pose substantial risk to the government’s balance sheet and the country’s financial stability • Portfolio often the largest in the country and the most complex • If not managed prudently, poses risk to the budget and can lead to risk of default and large economic losses • Poor debt management practices • can undermine investor sentiment and spark financial instability • Can increase a country’s susceptibility to crisis, particularly for countries that are vulnerable because of high debt levels or are susceptible to external shocks

6. June 2003 Why is Public Debt Management Important? (2) • Sound debt management can lower long-term borrowing costs for government and other domestic borrowers by • Establishing liquid benchmark issues and reducing the liquidity premium • Promoting depth and liquidity in the domestic bond markets • Establishing pricing benchmarks to enable other market participants to form contracts and price risks

7. June 2003 Why is Public Debt Management Important? (3) • Good debt management makes countries less susceptible to contagion and financial crises • There are limits to what sound debt management can achieve • Debt management is not a substitute for sound fiscal, monetary, and exchange rate policies

8. June 2003 Background of Guidelines • Requested by the Financial Stability Forum, then by the IMFC to help countries reduce their vulnerability to economic and financial shocks • Prepared by staff of the World Bank and IMF with input from debt management experts in over 30 countries and benefited from comments through 5 regional outreach conferences • Final guidelines endorsed by World Bank and IMF Boards then by IMFC at Spring 2001 meeting • Accompanying document prepared to illustrate how countries conduct debt management in accordance with the Guidelines

9. June 2003 Purpose of Guidelines Designed to help policymakers build their capacity to strengthen the quality of their debt management and reduce country vulnerability • Encompass both domestic and external debt, and contingent liabilities • Focus on areas of agreement for sound practice • Intended to assist in capacity building, not to serve as minimum standard • Necessarily general: need to be applied with flexibility, depending on each country’s circumstance