State Debt Auditing Standards

1. State Debt Auditing Standards Република България Сметна палата

2. General Information on Debt Management Република България Сметна палата

3. Structural Elements of State DebtAudited by the Bulgarian National Audit Office Internal Debt Consolidated State Debt Municipal Debt External Debt StateGuaranteed Debt Република България Сметна палата

4. Structure of the Audit Process • Criteria State Debt Audit Macro Level Micro Level Monitoring Audit of an Individual Loan Selection criteria Република България Сметна палата

5. Macro-level Audit Monitoring External Debt Municipal Debt Internal Debt StateGuaranteed Debt Република България Сметна палата

6. Objectives of Monitoring • 1.Verification of data derived from different sources – MoF, Bulgarian National Bank, line ministries, beneficiaries. • 2.To provide legislature and the executive with an independent and objective evaluation of the degree of fulfilment of the limits on the volume of debt as laid down in the legal basis. • 3.Analysis of the level of obligations (principal and interest)and assessment of elements changes in respect of previous periods. • 4.Identifying those debt elements which are most vulnerable to impact by the inherent exchange and interest risks. • 5.Identifying government loans with ascertained problems in the use of borrowed funds and servicing, and state guaranteed loans with high risk of the guarantee being called. Република България Сметна палата

7. Monitoring instruments (1) • 1.Register of external debt obligations • 2.Register of internal debt obligations. • 3.Municipal debt register • 4.Register of state guaranteed debt • 5.Register of foreign loans (government and state guaranteed) credit files (The registers maintained by the NationalAudit Office include all commitmentsagreed upon and assumedthrough acts of Parliament, while the Ministry of Financekeeps record only of the proceeds of borrowingactually received.) Република България Сметна палата

8. Monitoring instruments (2) • In calculating the value of debt obligations (principal and interest), the NAO uses two different approaches: • 1.Nominal value of the obligations as of a set date (30 Juneor 31 December). The values of the principal and interest payments are calculated on the basis of the foreign exchange cross ratesand interest rates used by the international financial institutions as of the respective date. This approach does not take into account the exchange risk and the interest risks throughout the repayment period - up to 35 years, and reduces the reliability of the dynamics of change in the values of obligations with respect to previous periods. Република България Сметна палата

9. Monitoring instruments (3) • 2.Determining the volume of obligations using a Linear Trend Model (LTM). This model uses average values of foreign exchange rates of participating currencies and the basic interest rates for past periods with a maximum remoteness, e.gfrom 1990. It is not particularly effective in the short and medium term, but in the case of long-term repayments (over 5 years) it allows for reducing the impact of foreign exchange and interest rate fluctuations down to acceptable limits.The data thus received, ensure greater degree of reliability of the dynamics of change in the volume of the external debt, internal debt and respectively the state debt. Република България Сметна палата

10. Monitoring of Macroeconomic Indicators • Annual dynamics of the volume of debt with respect to other macroeconomic indicators. • Annual dynamics of the volume of quotas on significant budgetary revenue and expenditureindicators. • Examination of the fulfilment of the Maastricht criteria. Република България Сметна палата

11. Using the Results of Monitoring Macro-level Management State Debt Management State Debt Management Strategy Reported Result No Material environment change Yes Monitoring Република България Сметна палата

12. Criteria used in selecting specific government and state guaranteed loans for audit Input information MONITORING Significant Investment Loans Loan spending delay Reported problems in loan servicing Criteria Current Ex ante Ex post Type of audit Selection of entities for audit of government and state guaranteed loans Република България Сметна палата

13. Use of audit results in the management of borrowed funds under government and state guaranteed loans Depending on the type of audit (current or ex post), the following scheme is applied: Expected results Strategy Management of funds Reported result Current audit Ex post audit information corrective actions Република България Сметна палата

14. Instruments and techniques used in the audit of funds under government and state guaranteed loans • Examination of the legality of signing • Regularity audit • Analysis of contractual relations • Performance audit