4th Annual World Bank Government Bond Market Conference and Technical Workshop KINGDOM OF MOROCCO Ministry of Economy and Finance March 12 14, 2014 National Bank of Romania Bucharest, Romania El Hassan EDDEZ, Deputy Director of Treasury Debt Office, Head Wednesday, March 12
Central Government debt snapshot Morocco s Rating (S&P / Fitch) BBB-/BBB- Debt indicators End of 2013 Central Governement debt (millions ) 49 478 % of GDP 62,5% Domestic debt (% of GDP) 47,9% External debt (% of GDP) 14,6% Debt share (%) Domestic debt 76% External debt 24% Cost and Risk indicators Average Apparent Cost 4,3% Short term debt share 17% Average term to maturity 5,5 years 2
GOVERNMENT DEBT MARKET Institutional framework of debt management Centralized debt management (Pole dette - MoF) Dematerialized securities (since 1997) Close coordination with monetary policy (the Central Bank) 3
GOVERNMENT DEBT MARKET Domestic debt market Morocco has one of the most developed governement debt market in the MENA region : Regular and predictable issuance calendar (since 1989). Large range of maturities : 13 week T-bills up to 30 year T-bonds. Developed transaction s infrastructure : Electronic auction system (since 2009). New debt and cash management IT system (since 2013). Liability mangement (since 2011). Cash management (since 2010). Active repo market (Master repo agreement, since 2004). Primary Dealers (since 1996 ; currently 6 PD). Diversified investor base. 4
BOND HOLDERS End of 2013 Other financial institutions 18% Other 6% Banks 30% Mutual Funds 25% Insurance Companies and Pension Funds 20% 5
YIELD CURVE End of February 2014 5.92% 6.25% 5.52% 4.59% 3.96% 3.30% 3.45% 3.59% 13 W 26 W 52 W 2 Y 5 Y 10 Y 15 Y 20 Y
GOVERNEMENT DEBT MARKET : CURRENT CHALLENGES Enhencing transparency and predictability of the issuance policy : High frequency of auctions. No standard pattern of bond maturity months. Large number of lines offered at every auction. Fragmentation of debt portfolio (includes too many lines). Announcement of financing needs on a monthly basis rather weekly basis. Strengthening the secondary market liquidity: Market liquidity indicators End of 2013 Turnover rate (%) 34% Average volume of transactions (millions ) 7,4 Average daily volume (millions ) 59,0 7
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 1. Improvement of transparency and predictability in the primary market The main measures introduced are as follow : A- Review of auction calendar : reduction of auction s frequency and number of auctioned lines Previous calendar Tuesday Number of line Tuesday New calendar Number of line First 13w, 26w, 52w, 2y 4 13w, 52w, 2y 3 Second 13w, 26w, 52w, 2y, 5y,15y, 20y 7 26w, 52w, 5y, 15y 4 Third 13w, 26w, 52w, 2y 4 13w, 52w, 2y 3 Last 13w, 26w, 52w, 2y, 10y, 15y, 30y 7 26w, 2y, 10y, 20y, 30y* Total Number of auctions ~280 Total Number of auctions ~208 4 or 5 *30Y bonds are offered quarterly 8
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 1. Improvement of transparency and predictability in the primary market B- Increase of maximum size of bonds Maturity Previous size New size 52w 2,5 2,5 2y 3 5 5y 10 10 up to 12 10y 10 13 up to 15 15y 5 13 up to 15 20y 5 Up to 10 30y 5 Up to 10 1 = 11.2 MAD Billion MAD 9
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 1. Improvement of transparency and predictability in the primary market C- Adjustment of maturity dates to support stable issuance strategy. Maturity Number of line to be created Maturity months 5 y 2 lines per year April / November 10 y 1 line per year June 15 y 1 line each two years April 20 y 1 line each two years February 30 y 1 line each five years February 10
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE Other measures supporting auction regularity Buy-backs and exchanges (actions and OTC) Cash management Improvement of cash flows forecasts Enhancement of the consultation s quality with PDs by the organization of conference calls the day before the auction. Announcement, in addition to monthly financing needs, of an indicative weekly amount to be auctioned to provide greater predictability for market participants. 11
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 2. Strengthening the secondary market liquidity Review of the Primary Dealer (PD) scheme to foster their commitment to contribute to the development of secondary market, IN TERMS OF INCENTIVES BEFORE Semi-open auction system (only banks but all banks). Pre-auction non competitive bids (exclusive to PDs). Privileged interlocutor for the Treasury. NOW, IN ADDITION Exclusive direct access to auction. Post auction non competitive bids. Privileged counterparty of the DMO for active debt management transactions. League tables (quarterly publication of the three best performing PDs). 12
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE Review of the Primary Dealer (PD) scheme to foster their commitment to contribute to the development of secondary market. IN TERMS OF PD s COMMITMENTS BEFORE Market share : 8% of the global volume in both primary and secondary markets. Indicative quotation. Information and advise to the Treasury. NOW, IN ADDITION Market share : 8% in each maturity segment (ST, MT and LT). Firm quotation : Five lines (two benchmarks quoted by all PDs and 3 liquid lines chosen by PD in a Panel split in 5 maturity segments). Minimum 2 hours in a range of 4 hours. Spread bid/ask: ST : 10 bps; MT : 15 bps ; LT : 20 bps. Minimum volume : MAD 5 millions for less than 2 year bonds; MAD 2,5 millions for maturities ranged between 2 and 10 years ; 1.25 million for 10 to 30 year bonds. Improvement of the quality of the advise and the information communicated to the Treasury.
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 2. Strengthening the secondary market liquidity Implementation of an electronic trading platform : Design of market model for quoting bonds (hybrid model : one platform, two market segments) : B2B that includes PDs only : click and trade. B2C that includes buy side investors (mutual funds, pension funds, Insurance companies, etc.): Request for quote. Design and implementation of quoting obligations by market makers in electronic trading platforms. Design of a pre-trade and post-trade price dissemination scheme to enhance price transparency. Market regulation related to the ETP. 14
GOVERNEMENT DEBT MARKET REFORM : SCOPE OF THE WORLD BANK S TECHNICAL ASSISTANCE 2. Strengthening the secondary market liquidity Design of a Repo/security lending facility for PDs so that they can effectively conduct market making activities and comply with firm quoting obligations : The measures implemented cover : The update of the legal framework to authorize the Treasury to implement the facility. The preparation of an operational manual describing the conventions for the repo/lending facility that includes : Duration : 1 day renewable for 30 days. Rate : central bank key rate 100 bps : for the first 10 days and 0% if exceeding 10 days. Authorized amounts per PD : o o MAD 100 millions per security and per day. MAD 300 millions for all securities per day. 15
OTHER REFORMS The main reforms that will contribute to developping domestic debt market are : Enforcement of the security lending legal framework : Covered short selling allowed, necessary to help PDs comply with firm quoting obligations. less costly before asking the Treasury for repo facilty foster the market liquidity by allowing investors to lend and borrow securities. Futures Market : the first contrats will concern Government bonds The law is under discussion in the parliament. 16
PERSPECTIVE To further developp the domestic bond market, the Treasury is working on different other projects : Implementation of the pre-requisits to attract non resident investors in the domestic bond market : Euroclearability of bonds. Control and evaluation of the non resident investors flows. Elaboration of a bond market investor s guide. 17