ISSAI 5420 – Public Debt Management and Fiscal Vulnerability: Potential Roles for SAIs

1. ISSAI 5420 – Public Debt Management and Fiscal Vulnerability: Potential Roles for SAIs Erika Latyšovič, Principal Auditor National Audit Office of Lithuania September 10, 2012, Helsinki. INTOSAI WGPD Meeting

2. ISSAI 5420 This paper examines the roles that SAIs could possibly play to help reduce fiscal vulnerability of governments and make financial crises less likely It is argued that SAIs could promote best practices for debt management, appropriate data disclosure standards as well as sound regulatory regimes for the financial services

3. Table of Contents: • Easier Access to Capital Markets and Increased Risks • Implications of Recent Financial Crises for Debt Managers • Potential Roles for SAIs: Promote Good Principles and Practices Appendix I – Recent Financial Crises (90’s experiences) Appendix II – Glossary on Financial and Operational Risks Appendix III – Vulnerability Indicators Appendix IV – Data Disclosure

4. Section A: Easier Access to Capital Markets and Increased Risks • Reference to specific countries need to be updated and reviewed • Might want to include references to the 2007 financial crisis and the complexity of new financial instruments

5. Section B: Implication of recent financial Crises for Debt Managers • Needs major revisions • Review all country references to update the examples • Should include European debt crisis • Might want to explain better how recent crises impacted on debt managers • Might want to refer to country such as Canada that redefined their debt management practices approach to establish risk/cost trade-off during and after the crises • Suggest abandon the split between emerging and developing economies

6. Section C: Potential roles for SAIs • Overall messages are still valid • Update references to IMF and World Bank • Update country references and initiatives • Might want to refer to recent reports of the INTOSAI Task Force Global Financial Crisis to explain the role of SAIs in regard to the supervision and regulation of the banking sector • Review entire section iii in light of recent 2007 financial crisis

7. Appendixes I. Recent Financial Crises • Add exhibit on 2001 crisis in Argentina • Add exhibit on 2007-2011 Financial crisis • Add exhibit on 2011-12 European sovereign debt Crisis (Iceland, Greece, Spain, Italy, Portugal) II. Risks • Should match ISSAI 5422 section 4.2 • Need to update the examples and references in liquidity and market risks

8. Appendixes (cont.) III.Vulnerability indicators • Need to align with ISSAI 5422 and ISSAI 5411 • Need to review examples given for risk indicators of financial services sector. Refer to more recent literature following the 2007 crisis IV. Data disclosure • Update or drop initiatives

9. Conclusions and recommendations • Issue of fiscal vulnerability and the role of SAIs are still very much topical, but many sections need to be updated because they refer to examples that are either outdated or lack references to recent events • Standard is not aligned and there is overlap with: • ISSAI 5422 An exercise of reference terms to carry out performance audit of public debt • ISSAI 5411 Debt indicators • Reports of the INTOSAI Task Force Global Financial Crisis and its sub-groups

10. Conclusions and recommendations (cont.) • It might be more cost-effective to rewrite the document in light of recent events and of the new literature • We recommend that the WGPD and ISSAI remove this publication from the list of Guidelines on Audit of Public Debt • The WGPD should publish a new and more contemporary guideline if members of the WGPD consider fiscal vulnerability and its link with public debt management still a relevant issue for the SAI community

11. Thank you for attention