Debt Statistics and Management: Issues at the National Level Punam Chuhan-Pole Development Economics Fiscal Transparency and Data Management Workshop For Delegation from the Ministry of Finance, China December 4-7, 2006 Washington DC 1
Phases in public debt issuance non-market borrowing (typically low-income countries): reliance on external official financing from IFIs, bilateral donors consessional and nonconcessional financing domestic debt market is not well developed market-based borrowing (emerging markets, typically middle-income countries): reliance on external financial markets that is, private creditors shift towards domestic debt market, development of government securities markets market-based borrowing (industrial countries): well developed domestic debt markets 2
Composition of government financial liabilities Central government External debt Domestic debt Other liabilities: off-balance sheet claims such as explicit contingent liabilities guarantees on debt of sub-national government, stateowned enterprises, and private-sector borrowers; put options on government securities; guarantees for exchange rate and price risks; government insurance schemes State government Loans from the central government Other loans and debt securities issued by the state Other liabilities 3
Market-based debt issuance calls for more sophisticated public debt management non-market borrowing (typically low-income countries): focus is on currency composition, product mix, maturity profile of existing and new external debt; monitor government guarantees (explicit contingent liabilities) market-based borrowing (emerging markets, typically middle-income countries): manage debt (1) within a risk management framework and (2) by integrating with budgetary cash flow focus is on currency composition, product mix, instruments, maturity profile of existing and new external debt; size and timing of new debt; swapping more expensive debt for less expensive debt focus is on product mix, instruments, maturity profile, timing, and size of issuance; swapping of external debt for internal debt Goal is to minimize the cost-- consistent with an acceptable level of risk--of the government s financing needs over time, maintain long-term sustainability of debt, and develop deeper government securities markets market-based borrowing (industrial countries): asset and liability management (including CL) within an integrated balance sheet approach 4
Why do we care about public debt data and management? Public debt external and domestic is a financial liability of the government, and typically accounts for a large component of the government s balance sheet. The structure and size of public debt affect a country s vulnerability to economic and financial shocks weak public debt management can impact financial stability, macroeconomic management, and economic performance. At the micro level, quality of public debt management has implications for the domestic debt market- depth, liquidity, investor base market confidence, and borrowing conditions. A critical element in sound debt management is availability of comprehensive and timely financial information good quality debt data are a precondition for debt management strategy and operations. Debt data also supports macroeconomic, debt sustainability, and fiscal sustainability analysis; and assessment of vulnerabilities to shocks. Better financial information also allows markets to better assess risk and improve the allocation of resources. 5
Public debt management is a key component of a correct policy mix: need for sound debt management Broad characteristics of sound debt management - Transparency and accountability--clarity of mandates, roles, responsibilities; open process for formulating and reporting of debt management policies; public availability of information on debt management policies; external auditing of debt management activities - Institutional framework embodying a strong governance structure and internal operational controls - Debt management strategy - Risk management framework to identify and manage the tradeoffs between the expected cost and risk in the government s debt portfolio, including the impact of CL on the government s financial position - Development and maintenance of an efficient market for government securities 6
A key task of the public debt management office is to produce good od quality data What do we mean by good quality data? timely and appropriate frequency comprehensive reliable The IMF s Data Quality and Assessment Framework for external debt statistics covers various quality aspects for data collection, processing and dissemination, as well as prerequisites for quality - Prerequisites for quality institutional preconditions for quality statistic legal and institutional environment resources available for the statistical program relevance other quality management 7
IMF DQAF continued - Assurances of integrity adherence to objectivity in the collection, compilation, and dissemination of statistics professionalism transparency ethical standards - Methodological soundness production of statistics should follow internationally accepted standards, guidelines and practices concepts and definitions scope classification and sectorization basis for recording - Accuracy and reliability statistics should present economic reality source data assessment of source data statistical techniques assessment and validation of intermediate data and statistical outputs revision studies 8
IMF DQAF continued - Serviceability statistics are disseminated with an appropriate periodicity in a timely fashion periodicity and timeliness consistency revision policy and practice - Accessibility data and meta data are presented clearly and are easily available data accessibility metadata accessibility assistance to users 9
Debt reporting standards international standards in the SDDS and External Debt Statistics: Guide for Compilers and Users External debt - All debt owed to non-residents - Debt by maturity short-term and long-term and instrument for four sectors: general government monetary authorities banking sector other sectors - Encouraged categories for reporting of debt domestic-foreign currency breakdown of external debt and forward debt service schedule (interest and amortization) - Debt by long-term Public and Publicly Guaranteed and Private Nonguranteed category; and short-term debt 10
Debt reporting standards international standards in the SDDS and External Debt Statistics: Guide for Compilers and Users continued Central government debt - all debt domestic and foreign - debt guaranteed by central government - debt by currency (including indexed) and maturity - encouraged category debt service projections (interest and amortization) All debt to be reported on a - quarterly basis - within a quarter of the period required 11
At the international level there are several initiatives for better ter dissemination of external debt data Quarterly External Debt Statistics a joint World Bank and IMF initiative brings together detailed external debt data that are published individually by countries that subscribe to the IMF s Special Data Dissemination Standard (SDDS). - standardized presentation of data - facilitate cross-country comparison - 59 countries have agreed to participate Joint External Debt Hub a multilateral initiative to bring together external debt data and selected foreign assets from international creditor/market and national data sources - provides a one-stop shop for several databases QEDS, BIS, OECD-DAC, IIP - enables comparison so as to eliminate inconsistencies between debtor and creditor data and provide a basis for improving data 12
QEDS Table 1: Gross external debt position by sector (SDDS required category) General Government Short-term Money market instruments Loans Trade credits Other debt liabilities 5/ Arrears Other Long-term Bonds and notes Loans Trade credits Other debt liabilities 5/ Monetary Authorities Short-term Money market instruments Loans Currency and deposits 6/ Other debt liabilities 5/ Arrears Other Long-term Bonds and notes Loans Currency and deposits 6/ Other debt liabilities 5/ Banks Short-term Money market instruments Loans Currency and deposits 6/ Other debt liabilities 5/ Arrears Other Long-term Bonds and notes Loans Currency and deposits 6/ Other debt liabilities 5/ Other Sectors 7/ Short-term Money market instruments Loans Currency and deposits 6/ Trade credits Other debt liabilities 5/ Arrears Other Long-term Bonds and notes Loans Currency and deposits 6/ Trade credits Other debt liabilities 5/ Direct investment: Intercompany lending Debt liabilities to affiliated enterprises Arrears Other Debt liabilities to direct investors Arrears Other Gross External Debt Position 13
QEDS Table 2: Gross external debt position: foreign currency and domestic currency debt (SDDS encouraged category) Foreign Currency Debt 6/ Short-term Long-term Domestic Currency Debt 7/ Short-term Long-term Gross External Debt Position 14
Table3: Debt-service payment schedule for outstanding debt as of end period (SDDS encouraged item) General Government Principal Interest Monetary Authorities Principal Interest Banks Principal Interest Other Sectors Principal Interest Direct investment: Intercompany lending 4/ Principal Interest Total Debt Service Payments Principal Interest 15
Importance of local currency markets is rising and it is changing g the characteristics of domestic debt, including those of public debt This is raising the bar on domestic debt statistics, which tend to be of mixed quality debt managers and policymakers need information for debt strategy development debt managers need information on projected cash flows asset managers need information on debt auction calendar, debt portfolio composition coordination between the various government agencies that produce and use public data is needed; sharing of information is critical market participants need information to assess risk and make informed decisions foreign participation is strong and growing in local markets, and foreign investors demand more and better information Well functioning markets demand transparency and flow of data; but domestic debt markets are often not well developed to provide a strong mechanism for improving information flows. This leads to a gap between the needs of data users and available data. 16
IMF is developing and piloting a template on public debt to support vulnerability and sustainability analysis Based on Government Finance Statistics - general government total financial assets and liabilities (and net debt) - composition by residency - by sub-sector - currency and maturity breakdown - projected debt service schedule (principal and interest) Dissemination on quarterly and annual basis 17
Moving forward on improving debt data and its availability Use demand for better data by policymakers and market participants to develop and sustain the supply of good data Identify issues and areas of weakness in debt data - gap vis-a-vis international standards - assess gaps using DQAF and other diagnostic tools Develop a detailed plan to strengthen aspects of debt information - harmonization and coordination of debt data collection processes - strengthening institutional capacity of national debt management offices, including analytical capacity (skilled debt management staff) to use financial informational to evaluate risk and analyze debt dynamics - sequencing of actions - establishing clear outcomes and goals Identify resources for implementing the improvement plan - trust funds 18
Thank You 19