Debt Management Performance Assessments in MEFMI Region (Eastern and Southern Africa) Panel Discussions at the DMF Stakeholders Conference 3 rd 4 th June 2015 Manila, Philippines
Key Messages 1 2 3 DeMPA results revealed clear areas of weakness in countries and in the region. Reforms are needed in legal framework; Audit; external borrowing; loan guarantees; cash mgt; Segragation of duties, staff capacity & BCP. Countries have positively responded to the DeMPA training and mission findings. These have triggered visible reforms in a number of countries.
Background MEFMI currently has 14 member countries: Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Tanzania, Rwanda, Swaziland, Uganda, Zambia, and Zimbabwe. It is one the DMF Implementing Partners for the Eastern and Southern Africa Region Of the 14 member states, 12 are eligible for assistance under the Debt Management Facility (DMF) MEFMI has also joined the World Bank and IMF missions to non-mefmi countries in the region e.g. Ethiopia, Sudan and Madagascar
Reforms before DeMPA A number of countries made significant efforts to improve debt management before the DMF: Improved recording and mgt of debt using systems provided by COMSEC and UNCTAD; Improved analytical capacity especially in areas such as DSAs; Clear delineation of debt mgt functions in terms of front, middle and back office functions; Attempts at consolidation of functions into one DMO; Efforts to develop domestic debt markets.
DeMPA Activities in the Region Assessments have been conducted in 12 countries: Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. With follow-up or reform plan missions to Malawi, Tanzania and Zambia. DMF has also funded regional DeMPA training for debt managers and public sector auditors in 2008 and 2012, respectively.
Assessment Results in the MEFMI Region Debt Records Segregation, capacity & BC Data admin and security Legal framework 12 Reporting Managerial structure 10 8 6 4 2 0 DM Strategy DM Operations Audit Cash flow and Cash Balance mgt Guarantees, onlending & derivatives External Borrowing Coord with fiscal policy Coord with monetary policy Domestic Borrowing Minimum of C Below Minimum
Results by Dimension Legal framework Reporting-D3 12 Managerial -D1 Reporting-D2 Managerial -D2 Reporting-D1 Debt Records-D2 10 Strategy -D1 Strategy -D2 Debt Records-D1 Segreg, capacity & BC-D3 8 6 DM Operations Audit -D1 Segreg, capacity & BC-D2 Segreg, capacity & BC-D1 Debt admin and data security-d4 4 2 0 Audit -D2 Coord fiscal policy - D1 Coord fiscal policy -D2 Debt admin and data security-d3 Coord with monet. Policy -D1 Debt admin and data security-d2 Debt admin and data security-d1 Cash flow and Cash Bal mgt -D2 Coord with monet. Policy -D2 Coord with monet. Policy -D3 Domestic Borrowing-D1 Cash flow and Cash Bal mgt -D1 Guarantees, onlending, derivative -D3 Guarantees, onlending, derivative -D2 Guarantees, onlending, derivative -D1 Minimum of C Domestic Borrowing-D2 External Borrowing- D1 External Borrowing- D2 External Borrowing- D3 Below Minimum
Areas for Action 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 33% 75% 42% 42% 8% 58% 83% 75% 0% 25% 25% 33% 25% 67% 42% Minimum of C Below Minimum
Why these Results Some of the reasons for the Result DPI Results (C & above) Legal framework 33% Lack of borrowing purposes or clear debt management objectives in the legislation. Absence of quantitative medium term debt management strategy with guidelines for the preferred DM Strategy 42% direction of evolution of specific indicators of interest rate, refinancing and foreign exchange risks Non-reporting of Debt Management activities to the Parliament - only statistical reports prepared without DM Operations 42% evaluation of strategy implementation Audit 8% Lack of performance audits (Debt Management activities, policies and operations are not audited). Lack of annual borrowing plan which includes assessment of the most beneficial or cost-effective terms and conditions for external borrowing that are obtainable from potential creditors and markets Absence of documented procedures which include preparation of terms sheet by the officials who External Borrowing 0% participate in the negotiations. Guarantees, onlending Absence of documented procedures for issuance of guarantees and processing of on-lending & derivatives 25% Excess cash is not managed i.e. not invested in market or with central banks at market rates Cash flow forecasting Absence of reliable monthly forecasts disaggregated into weekly and Cash Balance mgt 25% Absence of documented procedures for data recording, validation and storage of debt records, Data admin and processing payments, as well as, for controlling access to debt records security 33% Segregation, staff capacity & BCP 25% Reporting 42% Absence of written business continuity and disaster recovery plans. Absence of a risk champion or risk compliance unit in the MO of DMOs Non reporting of total nonfinancial public sector debt and loan guarantees.
Comparison with Global Results 90% 83% 80% 75% 75% 70% 60% 54% 60% 58% 62% 62% 58% 67% 50% 40% 33% 42% 42% 45% 34% 33% 44% 42% 30% 20% 10% 0% 23% 11% 8% 0% 25% 25% 25% 19% 22% 25% 16% 22% MEFMI Area "C" Worldwide "C"
Impact of DeMPA in the Dissemination of sound practice DeMPA Assessments and the Reform Plans have led to noticeable improvements in most MEFMI member states. Improvements have been seen in: the legal and institutional framework for public debt management, operational risk management, debt sustainability analyses and formulation of debt management strategies. Some countries have made more progress.
Malawi Public Debt Management Manual, which outlines the procedures for debt administration (2011) Medium Term Management Strategy (2010, 2013) Debt Sustainability Analyses undertaken regularly with assistance of MEFMI Review of debt management legislation (2014) A new debt management law was drafted (2014) This is expected to culminate into adoption of a new more comprehensive law
Mozambique Reorganized debt management functions alongside Front, Middle and Bank Office Medium Term Management Strategy (2009, 2010) Has been validating and reconciling the debt database Upgraded the debt database into CS-DRMS version 2
Namibia Reforms in cash flow forecasting and balance management following a DeMPA mission Medium Term Management Strategy (2012) Debt data validation and upgrading of a debt database in CS- DRMS version 2. Strengthening of debt management office through recruitment of additional staff in MoF
Tanzania Re-organisation of debt management functions, started with database unification and establishment of Principal DeM entity (on-going) Reviewing the legal framework for debt management (ongoing). Debt Sustainability Analyses undertaken regularly Medium debt management strategies (2011, 2013) Improved debt reporting
Uganda Re-organisation of debt management functions, leading to creation of a dedicated debt management office (2014-2015) Preparation of a Medium Debt Management Strategy (2014) Zambia Documentation of Debt Management Procedures Manual (2012) Medium Debt Management Strategy (2014, 2015) Regular debt sustainability analyses (2012,2013,2014)
Lesotho Review of the debt management legislation started in 2013 with assistance of the IMF Medium Term Debt Management Strategy (2013) with assistance of World Bank and MEFMI Debt sustainability analysis (2014) with assistance of MEFMI Zimbabwe A principal Debt Management Bill (already approved by Cabinet); Drafting debt management manuals (on going) Upgraded debt database to DMFAS v.6.0
Challenges Review and adoption of new laws for debt management take long In-adequate skills to conduct performance audits of debt management Misunderstanding of DeMPA objectives in some countries i.e. worry about low ratings instead of looking at it as a launchpad for debt management reforms.
Expectations from the Revised DeMPA Methodology The revised DeMPA methodology is expected to continue providing the basis of reforms The harmonization and streamlining of some DPIs is expected to clarify some inconsistencies and repetition in the current version. For example: o Bringing together issues of reporting in DPI 4 (Reporting and evaluation), that were initially in two dimensions i.e. 4 and 15 brings clarity and reduce repetitions and ambiguities o Evaluating of the strategy is now only in DPI 3 rather than in DPI 2 and DPI 3 in the current version
Issues for Further Consideration in Revising DeMPA DPI 9 that requires preparation of the annual most beneficial external borrowing terms seems not feasible in most developing countries This is because most of these countries are struggling to get financing externally and have no such luxury of selecting the sources. The qualification of undue political interference included in DPI is very judgemental and depends on what authorities would want the DeMPA mission to understand. It is impossible to verify objectively. The requirements to review procedure manuals frequently for example every second year as required in most DPIs also seems not feasible. The requirement would sound better if the requirement is to review the procedures in line with any new developments in the practices. The same is true for the requirement to review periodically the code-ofconduct and conflict-of-interest
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