Public Debt Lecture-4 by Tarun Das

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    UNITAR Lecture-2 External Debt - Tarun Das 1

    Management of Public

    Debt- Legal andinstitutional set up

    P r e s e n t e d b y

    Dr Tarun Das

    Economic Adviser

    Ministry of Finance

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    1-A Institutional set up forsovereign debt management

    Country Under Min of Located Located

    Finance or in the Elsewhere

    Tre asury Central Bank

    1.Australia 2.Austria 3.Belgium 4.Canada

    5.Denmark 6.Finland 7.France 8Germany 9.Greece 10.Ireland

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    1-B Institutional set up forsovereign debt management

    Country Under Min of Located Located

    Finance or in the Elsewhere

    Tre asury Central Bank

    11. Italy 12. Japan 13. Netherlands 14. New Zealand

    15. Potugal 16. Spain 17. Swe den 18. Swizerland 19. United kingdom 20. United States

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    1-C Institutional set up forsovereign debt management

    Country Unde r M in of Loca te d Loca te dFina nce or in the Else whe re

    Tre a sury Ce ntra l Ba nk

    21. Argentina 22. Brazil 23. China 24. Colombia

    25. Hungary

    26. India 27. Korea 28. Mexica 29. Thailand 30. Turkey

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    2-A Institutionalarrangement for annual debt

    borrowingCountry Limit on Ceiling on Institutional

    annuaL in the arrangement

    borrowing Centra l Bank

    1. Belgium Yes No MOF

    2. Canada Yes No MOF

    3. Finland Yes No MOF

    4. France Yes No MOF

    5. Germany Yes No MOF6. Greece Yes No MOF

    7. Hungary Yes No MOF

    8. India Yes No MOF

    9. Italy Yes No MOF

    10. Mexico Yes No MOF

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    2-B Institutionalarrangement for annual debt

    borrowingCountry Limit on Ceiling on Institutional

    annuaL in the arrangement

    borrowing Centra l Bank

    11. Morocco Yes No MOF

    12. New Zealand Yes No MOF

    13. USA No Yes MOF

    14. UK Yes No MOF

    15. Austria Yes No Autonomous16. Ireland Yes No Autonomous

    17. Portugal Yes No Autonomous

    18. Swe den Yes No Autonomous

    19. Denmark No Yes Cent.Bank

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    3-A Legal framework for debtoffice

    Country Limit on domestic

    debt

    Decides

    new limits1.Belgium Limit on borrow.cost Parliament

    2.Canada Yes,BorrowingAuthority Act Parliament

    3.Germany

    Yes, by Budget Law Parliament

    4.Greece No, except for T-Bills

    5.India Yes, by Budget Law Parliament

    6.Japan Yes, by Budget Law Parliament

    7.Mexico Yes by Federal Law Congress

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    3-B Legal framework for debtoffice

    Country Limit on domesticdebtDecidesnew limits

    8.Nether-lands

    Implicit limit Parliament

    9. NewZealand

    No legal limit MOF

    10.Swit-

    zerland

    No legal limit Parliament

    11.Turkey Only for govt.bonds Parliament

    12.UK Yes -

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    3-C Legal framework for debtoffice

    Country Limit on domesticdebtDecidesnew limits

    13.Australia

    Yes DMO

    14.Austria Yes by Financial Law Parliament

    15.Ireland No legal limit -

    16.Sweden Only for foreign exch -

    17.Denmark

    Yes, on outstanding

    debt

    Parliament

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    4-A Autonomy of DebtOffice

    Country Degree of

    autonomy

    Under

    1.Belgium Not independent MOF

    2.Canada - MOF

    3.Germany Independent MOF4.Greece - MOF

    5.Japan Not independent MOF

    6.Mexico Independent MOF7.Netherlands Independent MOF

    8.NewZealand

    Not independent MOF

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    4-B Autonomy of DebtOffice

    Country Degree of

    autonomy

    Under

    9.Switzerland

    Not independent MOF

    10.Turkey - MOF11.UK Independent MOF

    12.Australia - MOF

    13.Austria Not independent MOF14.Ireland Independent MOF

    15.Sweden Independent MOF

    16.Denmark Not independent MOF

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    5-A Institutional set-up for foreign currencydebt

    Country Central govt Local govt SOEs

    China MOF Not allowed SOEsIndia MOF Not allowed SOEs

    Indonesia MOF Not allowed

    Korea MOF Local govt SOEs

    Singapore None

    Thailand DMO/MOF None MOF

    Argentina MOF Local govt

    Chile MOF Not allowed MOF

    Colombia MOF Local govt MOF

    i i l f f i

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    5-B Institutional set-up for foreign currencydebt

    Country Central govt Local govt SOEs

    Mexico MOF Local govt MOFPeru DMO/MOF DMO/MOF MOF

    Venezuela MOF Not allowed Not allowed

    Czech Rep None MOF SOEs

    Hungary DMO/MOF None

    Poland MOF Local govt

    Russia MOF Local govt

    Israel MOF Local govt SOEs

    South Africa DMO/MOF Not Allowed MOF

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    6 International bestpractices

    1New Zealand -The New ZealandDebt Management Office (NZDMO

    2 Australia- The Australian Office ofFinancial Management (AOFM)

    3 Ireland- The National TreasurManagement Agency (NTMA)

    4 The Maastricht Treaty of theEuropean Union

    5 Fund-Bank Conditionality6 Heavily Indebted Poor Country

    (HIPC) Initiatives

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    7.1 Debt management objectivesand priorities(% of

    respondents)

    (a) Minimise financial costs and risks-38%

    (b) Funding management-26% Management of debt- 15%

    (d)Development of financial markets-

    9%(e) Others 13%

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    7.2. Establishment ofbenchmarks for risk

    management(% of respondents)

    1.Countries establishing guidelines forrisk management 45%

    2. Countries establishing benchmarksfor foreign currency debt 24%

    3.Countries establishing benchmarks forportfolio performance 21%

    4. Countries establishing benchmarksfor domestic currency debt 13%

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    7.3 Risk managementguidelines

    (a) Limit currency risk 35%

    (b) Avoid excessive short-term debt / tosmooth maturity profile 29%

    (c) Debt in least volatile currency 24%(d) Limit on debt with floating interest

    rate 18%

    (e) Debt matching reserves 12%

    (f) Others 18%

    t

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    . . na yt catechniques for

    undertaking riskanalysis (%)(a) Not using any analytical

    techniques 32%

    (b) Value-at-Risk (VAR)/ Cost-at-Risk (CAR) - 23%

    (c) Debt sustainability indicators-

    16%(d) Others 29%

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    7.5 Constraints forestablishingbenchmarks5.

    (a) Lack of debt management policy 23%

    (b) Lack of debt management

    expertise

    23%

    (c) No access to financial markets 13%

    (d) Lack of debt monitoring 10%

    (e) Difficult economic environment 10%

    (f) Others 21%

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    7.6 Sovereign Debt

    Management6. Use of derivatives to hedge currency and

    interest rate risks

    ( Currency swaps 31%

    ( Interest rate swaps 24%( Use of exchange commodity futures and options

    7%

    7. Constraints for using derivatives

    ( Lack of technical knowledge 71%

    ( Undeveloped financial markets 17%

    ( Legal constraints 12%

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    7.8 Sovereign Debt

    Management8. Institutions managing the

    foreign currency debt

    ( Ministry of Finance 51%(Jointly by the Ministry of Finance

    and the Central Bank 30%

    ( Central Bank 11%( Independent Debt Office 95

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    7.9 Sovereign Debt

    Management9. Coordination of both public and

    public debt

    ( Ministry of Finance 35( Jointly by the Ministry of Finance (MOF)and the Central Bank (CB) 24

    ( Partly by MOF and partly and

    independently by the CB 24( Debt Management Committee 18

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    7.10. Highest authorityfor approval of debt

    Authority Dom.debtExt.debt

    ( Finance minister/ Governor of the CentralBank 72% 49%

    ( Parliament 6% 21%( Interministerial board 8% 12%

    ( President/ Prime Minister6% 9%

    ( DG of independent authority 8% 9%

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    7.11 Average time takenfor approval of external

    debt

    ( One day or less 10%

    ( Less than a week 13%

    ( More than a week, but less than three

    months 65%

    ( More than three months 13%

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    7. 12. Management of

    Contingent liabilities( Subnational entities are allowed to raise

    their own funding abroad 69%

    ( Central govt provides explicit guaranteesfor IBRD loans 68%

    ( Central govt bears fully the exchange raterisk for IBRD loans41%

    ( Central govt shares partially the exchangerate risk11%

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    7.13. Efficiency ofMiddle Office (% of

    respondent)

    ( Use of Market Information system (MIS) 76%

    ( Access to internet 91%( No Middle Office Unit 43%

    ( Distinct Middle Office Unit 43%

    ( Middle Office placed under the direction of the

    Front Office 3%

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    7.14. Main constraints forexternal debt

    management

    ( Lack of proper organisational structure 31%

    ( Macroeconomic risk 14%( Lack of technical staff in the middle office 12%

    ( Lack of technical staff in the back office 6%

    ( Lack of legal framework 6%

    ( Limited local debt market 6%

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