Unitar Tarun Das Lecture-4

8/9/2019 Unitar Tarun Das Lecture-4

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UNITAR Lecture-2 External Debt - Tarun Das 1

Management of Public Debt-Legal and institutional set up

Presented by

Tarun Das

Economic Adviser, Ministry of Finance, India and

Resource Person for UNITAR


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1-A Institutional set up forsovereign debt management

Country Under Min of Located Located

Finance or in the Elsewhere

Treasury 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




11. Italy

12. Japan

13. Netherlands

14. New Zealand

15. Potugal

16. Spain

17. Sweden

18. Swizerland

19. United kingdom

20. United States


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1-C Institutional set up forsovereign debt management




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 Institutional arrangementfor annual debt borrowing

Country Limit on Ceiling on Institutional

annuaL in the arrangement

borrowing Central Bank

1. Belgium Yes No MOF

2. Canada Yes No MOF3. Finland Yes No MOF

4. France Yes No MOF

5. Germany Yes No MOF

6. Greece Yes No MOF

7. Hungary Yes No MOF8. India Yes No MOF

9. Italy Yes No MOF

10. Mexico Yes No MOF


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2-B Institutional arrangementfor annual debt borrowing

Country Limit on Ceiling on Institutional

annuaL in the arrangement

borrowing Central Bank

11. Morocco Yes No MOF

12. New Zealand Yes No MOF13. USA No Yes MOF

14. UK Yes No MOF

15. Austria Yes No Autonomous

16. Ireland Yes No Autonomous

17. Portugal Yes No Autonomous18. Sweden Yes No Autonomous

19. Denmark No Yes Cent.Bank


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-A Legal framework for debt office

Country Limit on domestic debt Decides newlimits

1.Belgium Limit on borrow.cost Parliament

2.Canada Yes,Borrowing

Authority 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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-B Legal framework for debt office

Country Limit on domesticdebt

Decides newlimits

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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-C Legal framework for debt office

Country Limit on domestic debt Decides newlimits

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 outstandingdebt Parliament


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4-A Autonomy of Debt Office

Country Degree of autonomy Under1.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.New Zealand Not independent MOF


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4-B Autonomy of Debt Office

Country Degree of autonomy Under9.Switzerland Not independent MOF

10.Turkey - MOF

11.UK Independent MOF12.Australia - MOF

13.Austria Not independent MOF

14.Ireland Independent MOF15.Sweden Independent MOF

16.Denmark Not independent MOF


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5-A Institutional set-up for foreign currency debt

Country Central govt Local govt SOEs

China MOF Not allowed SOEs

India 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


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5-B Institutional set-up for foreign currency debt

Country Central govt Local govt SOEs

Mexico MOF Local govt MOF

Peru 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 best practices

1 New Zealand - The New Zealand DebtManagement Office (NZDMO

2 Australia- The Australian Office of Financial Management (AOFM)

3 Ireland- The National TreasuryManagement Agency (NTMA)

4 The Maastricht Treaty of the EuropeanUnion

5 Fund-Bank Conditionality6 Heavily Indebted Poor Country (HIPC)

Initiatives


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7.1 Debt management objectives

and 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 of benchmarks

for risk management(% of respondents)1.Countries establishing guidelines for

risk management 45%

2. Countries establishing benchmarks forforeign currency debt 24%

3.Countries establishing benchmarks for

portfolio performance 21%4. Countries establishing benchmarks fordomestic currency debt 13%


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7.3 Risk management

guidelines(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 interestrate 18%

(e) Debt matching reserves 12%(f) Others 18%


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7.4. Analyticaltechniques

foru

ndertakingriskanalysis (%)(a) Not using any analytical

techniques32%

(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 for

establishing benchmarks5.

( ) L ck f t t licy

( ) L ck f t t x rtis

(c) cc ss t fi ci l rk ts

( ) L ck f t it ri

( ) iffic lt c ic vir t

(f) t rs


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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 andoptions 7%

7. Constraints for using derivatives( Lack of technical knowledge 71%

( Undeveloped financial markets 17%

( Legal constraints 12%


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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 andindependently by the CB 24

( Debt Management Committee 18


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7.10.Highest authority forapproval of debt

Authority Dom.debt Ext.debt

( Finance minister/ Governor of the

Central Bank 72% 49%

( Parliament 6% 21%

( Interministerial board 8% 12%

( President/ Prime Minister 6% 9%

( DG of independent authority8% 9%


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7.11Average time taken for

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 guarantees for

IBRD loans 68%

( Central govt bears fully the exchange rate

risk for IBRD loans 41%( Central govt shares partially the exchange

rate risk 11%


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7.13. Efficiency of Middle

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 for

external 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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Thank you

Have a Good Day

Unitar Tarun Das Lecture-4

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