STRENGTHENING DEBT MANAGEMENT IN LOW INCOME COUNTRIES LESSONS FROM TANZANIA

Transcription

1 STRENGTHENING DEBT MANAGEMENT IN LOW INCOME COUNTRIES LESSONS FROM TANZANIA The World Bank Stakeholders Forum 2012 June 25-26, 2012 Accra, Ghana Prepared by: Nicolaus Shombe Ministry of Finance-Tanzania

2 Outline Introduction-Current DM in Tanzania Evolution of Tanzania Debt Debt Management in Tanzania Why improving DM in Tz is important TA programs to strengthen DM in Tanzania Key Developments Towards establishment of DMO in TZ Challenges 2

3 Introduction-Current DM in TZ DM in Tanzania is guided by Government Loans, Guarantees and Grants Act No. 30 of 1974 as amended in 2004 and the NDS in The Gvt published its First External Debt Strategy in March 1999 in the context of the launch of the HIPC initiative. Reaching Completion Point in November 2001 the Gvt published NDS

4 DM Cont. KEY ISSUES IN NDS 2002:- CENTRALISE & STRENGTHEN DEBT MANAGEMENT WITHIN THE TREASURY: Medium-Term: Set up a debt unit within the MOF with Front, Middle and Back Office Short-Term: Set up NDMC as Apex Advisory Body on Debt to the Minister of Finance: Centralise Debt Policy Analysis in a Strengthened and Enlarged PAD in the Treasury: Improve cash management system to better cater to MOF needs To address capacity debt management issues 4

5 Implementation of NDS YEARS now but Most of the above proposed reforms have not been implemented!!!!. 5

6 Evolution of Tanzania Debt : National Debt and Debt-to-GDP Ratio (Billion Tshs) Total Debt PPG Debt Total Debt to GDP / / / / / / / / / /11 Source: Ministry of Finance and Bank of Tanzania 6

7 Evolution of Tanzania Debt Trend of External Debt Stock and Ratio to GDP Total External Debt PPG External Debt External Debt-to-GDP 10, , , , , , , , , , / / / / / / / / / /11 Source: Ministry of Finance and Bank of Tanzania 7

8 Evolution of Tanzania Debt Trend of outstanding Public Domestic debt Medium and Long Term (MLT) Short Term 7, , , , , , , / / / / / / / / / / /11 Source: Ministry of Finance and Bank of Tanzania 8

9 Tanzania Debt April Parastatal Companies 7.1% Private Sector 15.7% Commercia l Debt 13.2% Export credits 7.4% Bilateral debt 12.5% Central Government 77.2% Multilateral debt 66.9% 9

10 What is the implication of this Trend? Rate of debt growth is high Composition of Debt Stock is Changing High Government financing needs New terms for new borrowing NEED: Strengthening Debt Management For the Increasingly Difficult Challenges Going Forward 10

11 Current DM in Tanzania Debt management operations in Tanzania are fragmented 5 Heads of Departments (at the MOF) plus 2 Directors at the Bank of Tanzania, that are responsible for parts of DM operations, while at the same time, they are responsible for other issues. (DM is Residual is NOT Core function ) This structures reflect past legacy whereby government borrowing was restricted to borrowing from concessional sources 11

12 Current debt management operations Minister of Finance Permanent Secretary Governor Bank of Tanzania Division EAD PAD ACGEN PPP-Finance TR DMD FMD DM Units Multilaterial Debt&Strategy Public Debt PEA Public Investment Domestic Auction Bilateral PCM External Other Units Aid Fiscal Expenditure Mgt Regional Econ Coordination Monetary& Financinal Sector Financial Mgt Project Mgt&Monitoring External Trade Financial System Macro&Growth Internal Audit Public Enterprise Restructing &Monitoring Public Enterprise Mgt Services Other CB work NDMC and TDMC coordinates debt management operations. 12

13 Why is fragmentation a problem? No senior official managing total debt on a day-to day-basis No one responsible for non-concessional borrowing Unclear who is responsible for guarantees, no credit risk assessment made PPPs requiring government commitment and guarantees are under PPP Department not linked with credit risk assessments or included in the MTDS Delays in information flows, e.g., timing of disbursements, data for analysis in required format Separation of cash & debt management forces volatility in budget execution and hinders the development of auction calendar Same skill can be used for other functions 13

14 WHAT TO DO? EF D PAD ACGE N TR Consolidate government debt management activities under one managerial structure, through the establishment of the debt management office

15 Recommendation towards a Modern Debt Management Office (DMO) BOT FMD DMO FO MO BO PPP- Finance Recording and Contracting debt Policy and Analysis Servicing External Strategy Recording Domestic Analysis Initiate Payments Guarantees Credit risk mgt Reporting Control

16 WAY FORWARD: Transfer responsibilities to DMO Front Office: staff from EFD (for external official debt) seconded from BOT (for domestic debt) hire new staff for non-concessional debt staff from PAD debt (loan proposal analysis) Middle Office: Staff from PAD-Debt (for credit risk assessment, MTDS, DSA, and monitoring and reporting of activities against strategy) Back Office: Staff from ACGEN-Public Debt Staff from TR (for recording guarantees and on-lending) 16

17 New organizational structure needs to be supported by legal framework Amendment of Government Loans, Guarantees, and Grants Act (2003) Authority to borrow linked to specific purposes Guarantees (or guarantee programs) and PPPs approved by Parliament Debt management objective Requirement to develop MTDS and publication Annual reporting to parliament Ensure consistency with: Draft Treasury Registrar Act PPP ACT and Regulations (2010) Other Acts and Regulations 17

18 Front Office Action Plan Training on how to approach commercial creditors and analyze the terms and conditions offered; Basic bond maths TA on techniques for assessing whether a project should be financed through borrowing and standard procurement or through a PPP arrangement have to be developed Develop annual borrowing plan. Further Training on CS-DRMS For quality database 18

19 Middle Office Action Plan Build capacity in credit risk assessment for on-lending, guarantees and PPPs. The counterparty and not the project should be central for decisions on guarantees and on-lending. Produce report on risk of default by classifying financial strength according to low risk, medium risk and high risk. Frequent and flexible risk modeling using MTDS, DSA, and other applications for regular and ad hoc risk analysis for total as well as part of debt portfolio. Develop an MTDS that include future PPPs and guarantees 19

20 Back Office Action Plan Establish information flows with sources of data Set up and document procedures for recording, servicing and reporting Compile database for guarantees issued and on-lent in the past Develop Business Continuity Plan including for IT support /back ups 20

21 Operational Risk Management Ensure duality in data registration Produce procedures manuals Documented IT strategy Establish business continuity planning Enhanced code of conduct regulations specific for DMO and NDMC 21

22 TA PROGRAMS TO STRENGTHEN DM IN TZ TZ has received TA in the field of DM including from the: Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), East AFRITAC Commonwealth Secretariat (COMSEC). World Bank and IMF 22

23 TA Programs Cont.. As part of TA, April, 2010, DeMPA team (IMF/WB&MEFMI) undertook a comprehensive assessment of DeM functions using the DeMPA tool. January 2012 Reform Mission vested Tanzania to work on DeMPA findings 23

24 TA. Joint Bank- Fund MTDS baseline Assessment/ Diagnostic Joint Bank- Fund MTDS follow-up Reform Plan World Bank / IMF/ MEFMI/ COMSEC - Dec 2009 World Bank / MEFMI - April 2010 World Bank / IMF/ MEFMI - Jan 2011 World Bank / MEFMI - Jan

25 KEY DEVELOPMENT FROM TAs Initiatives to create an Independent Debt Management Office (DMO) have started and are on right track. The DM reform will be folded into the broader PFM reform program financed by donor community and government Capacity to conduct DSA has been developed Ability to Conduct MTDS under minimum external support Availability of Unified Public Debt Data Base 25

26 CHALLENGES Lack of Political will and awareness to management on DM Low capacity analyzing, negating, monitoring loan contracts High Staff turn over and inability to attract staff with the right skill Inconsistencies in the legal framework 26

27 Effective ways to delivery TA Reform programs need to be tailor-made to fit Country specific circumstances Country ownership and commitment to reform is very important Need Commitment from host country and awareness by Management of the importance of DM ( TA has to be Demand Driven by host countries ) Coordination with regional institutions eg MEFMI Link to on-going PFM reform plan and other initiatives for downstream implementation 27

28 THANK YOU!!!!!!! 28