Public Debt: Acquisition & Reporting. Presenter: Robert Likhang RL Chartered Accountants - Lesotho 28 February2017

Transcription

1 Public Debt: Acquisition & Reporting Presenter: Robert Likhang RL Chartered Accountants - Lesotho 28 February2017

2 Approach The journey Acquisition Where and How debt is acquired Management Managing the exposure: cost, risk & objectives, debt structure (maturity, interest, currency Reporting Reporting, Accountability, and governance

3 Government Debt Definition Domestic debt: owed from local lenders, often for budget deficit and /or mopping up excess funds Sovereign Debt Debt owed by Government Government borrowing by: Securities, Treasury bonds/bills less creditworthy countries often from: supranational organisations e.g. World Bank (IDA, IBRD, IFC), IFAD, BADEA EXIM Banks, etc., and International financial institutions. External debt: owed to foreign lenders National Debt Public Interest

4 PIGS ARE REAL Sovereign Debt Crisis Portugal Nov 2010 austerity measures by Portugal cut wages, increase tax Spain Economic depression started Could not bail out financial sector. Cause housing bubble Spain Euro zone debt crisis Greece Italy Greece started Trade deficit + Increased labour costs Italy debt to GDP over 100% from late 80%. Ireland over 100% of GDP in recent years. Spending cuts

5 Sovereign debt management Debt Management considerations Cost objectives Raising optimal funding Depending on economic level, service charges/ interests, grace, grant component, maturity, crowding out (for domestic), availability Default, interest, currency, liquidity Risks objectives Economic leveraging Fiscal & Monetary policies

6 Sovereign debt management Considerations for debt structuring Clear Macroecono mic framework Coordination with fiscal and monetary policies Maturity Currency Interest rate

7 Debt Capital market Wisdom of capital market for the economy Facilitating liquidity management in line with short/longterm objectives Efficient mobilization & allocation of resources Capital Market Transmitting signals for implementation of monetary policies CRITICAL ISSUES: 1. Increasing market Liquidity 2. Diversification (instruments types, maturity timing, foreign and local 3. Longer tenors 4. Subsequent issuers Financing development activities of government

8 Debt Capital market Benefits of efficient capital market to financial system and economy Reduction of borrowing costs Enhanced mobilization of resources Capital Market Heterogeneity of market participants Provide greater funding avenues for government

9 Institutional Arrangement key factors Critical issues Priority to strategic public policy objectives rather than tactical trading objectives Modernising debt management Critical issues Mechanism for successful delegation with effective accountability to the Ministry of Finance Capacity strengthening to deal with financial portfolio and public policy

10 Institutional Arrangement key factors Critical issues Priority to strategic public policy objectives rather than tactical trading objectives Modernising debt management Critical issues Mechanism for successful delegation with effective accountability to the Ministry of Finance Capacity strengthening to deal with financial portfolio and public policy

11 Institutional arrangements potential impact Institutional variables Development of key financial markets Legal Protection of creditors Transparent and comprehensive credit & financial information

12 Governance & Legal framework Management = Ministry of Finance + Central Bank or Independent Debt Management Agency Borrow, issue, invest for Government Mandates and roles articulated Sound business practices and controls Debt Management Agency Risk Management and Business Recovery procedures Management Information systems Ethics for staff

13 Governance & Legal Framework Risks to manage Rollover Liquidity Credit Risks Settlement Operational Market

14 Political and Economic stability influences Economic growth is not leveraged, hence slow Credit rating becomes low Instability influences Difficult to borrow from markets Potential for unmanaged sovereign debt leading to crisis

15 Recording and Reporting implications Transparency on debt management policy formulation, and public availability of information e.g. budgets, financing, position etc. CS-DRMS system Stock and composition of debt and financial assets, including currency, maturity and interest rate structure Accountability and assurance of agency responsible for debt management (audit)

16 I thank you Robert Likhang Consultant- Strategy, Governance, Finance