## The Medium-Term Debt Management Strategy ## Source details **Canonical URL:** [The Medium-Term Debt Management Strategy](https://www.imf.org/-/media/files/publications/pp/2017/pp072817-the-medium-term-debt-management-strategy.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2017/pp072817-the-medium-term-debt-management-strategy.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2017/pp072817-the-medium-term-debt-management-strategy.pdf.json) --- ### Executive summary — background, purpose, and MTDS objectives - Report to the Boards of the International Monetary Fund (IMF) and the World Bank (WB); third in a series on MTDS evolution and capacity building. - Date: June 9, 2017. - Primary aim of debt management: raise required funding at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk, and contribute to macro-financial stability and financial sector development. - MTDS framework components: - Methodology and associated Analytical Tool (AT). - Objectives and scope of debt management. - Characteristics of existing debt portfolio and risk priorities. - Sources of potential domestic and external financing. - Macroeconomic framework and structural factors. - Baseline pricing assumptions and shock scenarios. - Comparison of alternative funding strategies based on estimates of cost and risk. - Core objectives: - Help develop a Debt Management Strategy (DMS) recognizing cost-risk trade-offs. - Take into account linkages with macroeconomic policies and maintain debt sustainability. - Facilitate domestic debt market development. - Framework adaptable to LIDCs and EMDCs; resulting DMS typically published in a separate document. ### Trends, evolving risks, and market developments - Drivers of rising debt vulnerabilities: - A prolonged growth slowdown, increased fiscal deficits, and heightened geopolitical risks. - Negative terms of trade shocks (commodity and energy price shocks), weather-related shocks, and contagion from global financial market crisis. - Increased reliance on foreign financing in a low interest rate environment. - Eurobond market developments and risks: - Surge in Eurobond issues linked to low global interest rates. - Eurobond spreads can vary by several hundred basis points in a few months. - Refinancing risk could become acute if global rates return to historical levels and capital flow reversal coincides with initial Eurobond maturities. - Local Currency Bond Market (LCBM) indicators (Africa examples): - Senegal, Namibia, Cote d’Ivoire, and Uganda more than doubled issuance of local currency government bonds between 2009 and 2014. - The stock of local currency bonds in these countries is now on average equivalent to 8.5 percent of GDP. - Maturity of bonds issued between 2009 and 2014 increased on average from 1.5 years to 6.4 years. - Some countries (Ghana, Kenya, Namibia, Nigeria, Tanzania) issued local currency bonds in maturities over 15 years. - Non-resident investors often support longer maturities but can introduce volatility. - Local currency issuance mitigates currency mismatch; long maturities reduce refinancing risk but are often issued at relatively high cost. ### Technical assistance delivery, modalities, and scale - Volume and geographic coverage: - Over 100 WB and IMF MTDS technical assistance missions since 2008. - About half of missions to Africa; one quarter to Latin America and the Caribbean. - Over 10 MTDS technical missions delivered in a typical year. - In 2016, 18 MTDS technical assistance missions completed. - Training and outreach: - Since 2008 over 27 dedicated MTDS training events; an additional 8 general debt management trainings incorporated MTDS elements. - Typical training event: about 30 national officials. - Online training: - Since 2013, ten offerings of two online courses on debt sustainability and debt management. - More than 6,400 participants involved; 3,629 participants awarded course certificates (more than half government officials). - WB offers twice yearly a facilitated on-line DeMPA course covering MTDS and DSF fundamentals. - Delivery evolution and effective modalities: - Greater reliance on workshops using the AT with country data and hands-on training. - Briefings/presentations by authorities to strengthen ownership and horizontal communications. - Authorities presenting a draft DMS in final wrap-up to senior policymakers to strengthen engagement and vertical communications. - National workshops ranked most helpful by authorities, followed by international trainings and regional workshops. ### Innovations and enhancements to the MTDS Analytical Tool (AT) - AT updates and features: - Introduction of operational financing targets as policy anchors. - Expansion from 15 to 20 debt instruments. - Addition of functionality to assess liability management operations (buyback and exchange), accumulation and use of cash buffers. - AT is built on an Excel spreadsheet; equations are tractable and AT is not menu driven to avoid a black box. - Planned features: account for interest costs for intra-year borrowing; track cost and risk indicators over a longer horizon; develop an ABP consistent with the DMS. - Training innovations: - “Advanced MTDS and Annual Borrowing Plan (ABP)” course integrating MTDS outputs into ABP and auction calendar using country data and invited country teams (4–5 countries, 4–5 specialists per country). - Consideration to make online courses available year-round and develop additional language modules. - Limitations: - AT cannot accommodate State Contingent Debt Instruments and hedges; such instruments should be treated outside the AT to retain simplicity and transparency. - Need for more customizable scenarios, market risk metrics, and expanded scope (contingent liabilities, sub-national debt, SOE liabilities). ### Capacity building outcomes, effectiveness, and diagnostic measures - Questionnaire responses: - 62 responses from 110 countries surveyed; 37 respondents received MTDS TA. - Majority reported MTDS TA helped introduce a structured approach to DMS design and raised risk awareness among senior officials. - More than four-fifths of respondents indicated they have prepared and published DMS. - DeMPA and related quantitative indicators: - DeMPA launched February 2008; revised 2009 and 2014; comprises 14 DPIs and 33 dimensions. - By end-2016, 113 DeMPA missions fielded in 78 countries; 31 countries received repeated assessments. - DeMPA-based sample (31 countries) — Changes in DeMPA Detailed Scores (Number of countries): - Quality of the DMS: 1st DeMPA A, B, C = 3; Most recent DeMPA A, B, C = 7. - Decision-making process and publication of the DMS 1/: 1st DeMPA A, B, C = 3; Most recent DeMPA A, B, C = 9. - 1st DeMPA D = 28; Most recent DeMPA D = 24. - Table III.1 (78-country sample) — Share of score A, B, or C: - Overall Latest DeMPA 37; First DeMPA 29. - I. Governance and Strategy Development Latest DeMPA 39; First DeMPA 29. - II. Coordination w/ Macroeconomic Policies Latest DeMPA 58; First DeMPA 57. - III. Borrowing and Related Financing Activities Latest DeMPA 33; First DeMPA 27. - IV. Cash Flow Forecasting and Cash Balance Management Latest DeMPA 13; First DeMPA 15. - V. Debt Recording and Operational Risk Management Latest DeMPA 30; First DeMPA 17. - Other measures: - World Bank CPIA scores for debt policy and debt management increased between 2008 and 2015 for low- and middle-income countries. - World Bank Debtor Reporting System (DRS): based on end-2015 data, three quarters of these countries were rated satisfactory in reporting adherence; at end-2010 only half met the criteria. - Observed portfolio outcomes in case studies (18 country missions, 2008–2016): - Foreign exchange risk decreased or stable in 12 of 18 countries. - Interest rate risk decreased or stable in 13 of 18 countries (mainly from increased fixed-rate issuance). - Refinancing risk reduced in 13 of 18 countries due to longer maturities; deteriorated in 5 countries resorting to shorter maturities. - Debt-to-GDP ratios increased considerably between 2010 and 2015 in 13 of 18 countries; average increase around 10 percentage points in three years (wide variation). ### Implementation challenges and capacity constraints - Data and AT usage: - Compiling debt portfolio data and exporting debt recording system data into the AT are practical hurdles. - Projecting baseline interest and exchange rates and calibrating shock scenarios are challenging. - Many countries lack capable, fully functional debt recording systems; assistance on debt recording is often a precondition for MTDS TA. - Institutional and operational weaknesses: - Fragmentation of debt management responsibilities, lack of institutional mechanisms to approve/update/monitor strategy, and under-staffed DMOs with high turnover impede implementation. - In over three quarters of responding countries, strategy coverage limited to central government debt. - Less than half of respondents include explicit central government guarantees in the analysis. - In over one third of countries, actual borrowing decisions are not informed by the strategy document; about one fifth do not complement strategy with an annual borrowing plan. - Persistent deficiencies remain in cash management, assessment of loan guarantees, and operational risk. - Programmatic approach needs: - Sustained, multi-pronged capacity building preferred; programmatic delivery: diagnosis → actionable reform plan → tailored TA. - Trade-offs: programmatic approach better for substantial support but has start-up costs and risks if country circumstances change; one-off TA sometimes appropriate for focused needs. - Up-front country ownership and high-level commitment critical for sustained implementation. ### Policy recommendations, capacity building priorities, and proposed enhancements - Continue updating and refining MTDS framework and AT while maintaining core functions. - Adopt a mix of hands-on training and greater use of on-line learning (including MOOC) to enhance effectiveness and efficiency. - Emphasize sustained client ownership and programmatic TA where appropriate (commitment, timeline, resource allocations, staff retention, progress criteria). - Strengthen linkages between MTDS, annual borrowing plans (ABP), and debt sustainability analysis (DSA); develop AT features to produce an ABP consistent with DMS. - Expand MTDS scope to explicitly consider: - Contingent liabilities, SOE liabilities, sub-national debt, leasing obligations. - Additional risk factors, diverse scenarios, and market risk metrics. - New instruments and operations: liability management, inflation-linked bonds, Sukuk, diaspora bonds; treat state-contingent instruments outside AT or via complementary tools. - Strengthen complementary reforms: debt recording, governance, cash management, legal frameworks, market infrastructure, primary dealer frameworks, settlement and depository services. - Enhance program design by linking MTDS TA to IMF- or WB-supported programs and embedding measures into program documents or WB policy-based operations where debt composition is macro-critical. - For disaster- or commodity-prone countries, add analytic framework to choose between insurance and issuing debt. ### Shock scenarios, calibration, and standard assumptions used in MTDS analysis - MTDS AT allows five scenarios including baseline; shocks generally applied in the second year. - Exchange rate shocks: - Extreme exchange rate shock usually set at 30 percent (guided by LIC-DSF). - Moderate exchange rate shock usually in the range of 15–20 percent. - Country-specific calibrations where historical depreciations exceeded these levels (examples: Zambia, Kyrgyz Republic). - Interest rate shocks: - Linked to borrowing instruments; baseline projections for capital market instruments generally based on forward yield curves. - Shocks applied as parallel shifts or slope changes; concessional multilateral loans rarely subjected to interest rate shocks. - Example shock calibrations from country cases: - Kyrgyz Republic: Exchange rate shocks set at 40 and 20 percent; external interest rate shock: increase of US Treasury yields by 200 basis points for a 1-year maturity and 400 basis points for a 10-year maturity; domestic interest rate shock: parallel shift of the yield curve by 5 percent. - Zambia 2014: Extreme exchange rate shock: 30 percent depreciation vs. US dollar; moderate shock: 15 percent vs. US dollar. - Uganda and others: Exchange rate shocks standard DSA shocks of 15 and 30 percent in the second year. ### Donor funding, facilities, and partnership programs - Debt Management Facility (DMF) trust fund: - Supported by Austria, African Development Bank, Germany, The Netherlands, Norway, the Russian Federation and Switzerland. - Works with all LIDCs, IDA-eligible and PRGT countries (84 in all). - From inception to end-FY16, DMF supported over 230 missions across 75 countries and twenty sub-national governments, and trained over 800 client practitioners. - Activities: country missions, training events, on-line courses, outreach, research, peer learning. - New DMF activities: Joint Bank-IMF Debt Sustainability Framework, domestic debt market development, sub-national debt management, risk management, international capital markets access. - Government Debt and Risk Management Program (WB, supported by Switzerland): - Covers Azerbaijan, Colombia, Egypt, Indonesia, Ghana, Macedonia, Peru, Serbia, South Africa, Tunisia and Vietnam. - Provides medium-term TA with tailored reform plans over a 3- to 5-year engagement. - Other donor-supported regional advisors and in-kind support noted. ### Annexed guidance — MTDS key steps and purpose (preserved) - Step 1. Identify objectives and scope (examples: meet financing needs; minimize cost; maintain risk at prudent level; develop domestic market; reference for private issuance). - Step 2. Identify current DMS and cost-risk of existing debt. - Step 3. Identify and analyze potential funding sources and constraints. - Step 4. Identify baseline projections and risk in fiscal, monetary, external and market areas. - Step 5. Review longer-term structural factors (commodity vulnerability, access to concessional financing, REER trends, inflation). - Step 6. Assess and rank alternative strategies on cost-risk trade-off. - Step 7. Review implications with fiscal and monetary authorities and for market development. - Step 8. Propose and approve MTDS; document preferred and alternative strategies; present to highest authority; disseminate agreed MTDS. _Executive Summary and selected sections from pp072817-the-medium-term-debt-management-strategy (Medium-Term Debt Management Strategy, June 9, 2017)._ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and purpose - This report to the Boards of the International Monetary Fund (IMF) and the World Bank (WB) is the third in a series regarding the evolution of the Medium-Term Debt Management Strategy (MTDS) framework and associated capacity building efforts. - The Boards endorsed the development of the MTDS and ancillary tools in 2007 and mandated a program of technical assistance to help countries build capacity in this area. - Date: June 9, 2017. ### MTDS framework and objectives - The primary aim of debt management: raise the required amount of funding at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk, and contribute to macro-financial stability and financial sector development. - MTDS framework consists of a methodology and an associated analytical tool (AT) to facilitate sound debt management. - Core objectives of the MTDS framework: - Help countries develop a Debt Management Strategy (DMS) that explicitly recognizes the relative costs and risks of alternative financing choices. - Take into account linkages with other key macroeconomic policies and maintain debt sustainability. - Facilitate domestic debt market development. - The framework is adaptable and especially geared towards low-income developing countries (LIDCs) and emerging market developing countries (EMDCs). - Main components addressed by the MTDS framework include: - Objectives and scope of debt management. - Characteristics of the existing debt portfolio and the identification of risk priorities. - Sources of potential domestic and external financing. - Macroeconomic framework and structural factors. - Baseline pricing assumptions and shock scenarios. - Comparison of alternative funding strategies based on estimates of cost and risk. - Resulting DMS is typically published in a separate document. ### Trends, evolving risks, and market developments - Many EMDCs and LIDCs face increasingly complex debt-related vulnerabilities; several countries’ debt vulnerabilities—in total and external debt stocks and in financing and debt service needs—have been rising. - Main drivers of recent trends: - A prolonged growth slowdown, increased fiscal deficits, and heightened geopolitical risks in some developing countries. - Negative terms of trade shocks—particularly commodity and energy price shocks—weather-related shocks, and contagion from global financial market crisis. - A deliberate increase in reliance on foreign financing in a low interest rate environment. - Eurobond market developments and risks: - Surge in Eurobond issues driven in part by prolonged low global interest rates. - Eurobond spreads can vary by several hundred basis points in a few months in reaction to local or global events. - If global interest rates return to historical levels and capital flow reversal coincides with the initial wave of Eurobonds reaching maturity, refinancing risk could become acute, particularly for countries with macroeconomic imbalances. - Local Currency Bond Market (LCBM) developments: - In Africa, countries such as Senegal, Namibia, Cote d’Ivoire, and Uganda more than doubled issuance of local currency government bonds between 2009 and 2014. - The stock of local currency bonds in these countries is now on average equivalent to 8.5 percent of GDP. - The maturity of bonds issued between 2009 and 2014 increased on average from 1.5 years to 6.4 years. - Some countries (Ghana, Kenya, Namibia, Nigeria, Tanzania) issued local currency bonds in maturities over 15 years. - Non-resident investors often supported longer maturity local currency bonds but can subject markets to swings in international investor sentiment. - Local currency issuance mitigates currency mismatch and long maturities reduce refinancing risk but are often issued at relatively high cost. ### Technical assistance delivery and evolution - The IMF and WB have collaborated to deliver substantial MTDS-based technical assistance, focusing on middle- and lower-income countries. - Modes of delivery included country visits by staff and experts, regional training events, and organization of forums. - Delivery evolved to emphasize: - Tailoring assistance to country circumstances. - Country ownership. - Coordination within and across agencies in recipient countries. - Complementary reforms frequently supported effective capacity building: strengthening institutions and governance arrangements, debt recording, and government cash management. - Linkages between MTDS, annual borrowing plans (ABP), and debt sustainability analysis (DSA) have been strengthened, but further work is needed. - Sustained streams of support, rather than one-off missions, often produced better results. - Country ownership—often reflected in commitments under IMF- or WB-supported programs—proved critical to sustained enhancement of debt management capacity. - Donor support has been important and generous. ### Effectiveness and observed outcomes - Effectiveness documented using qualitative and quantitative metrics, including a questionnaire of national authorities and quantitative indicators. - Majority of countries receiving technical assistance indicated benefits: - Helped introduce a structured and coherent approach to designing a DMS. - Raised awareness of risks among senior officials and broader stakeholders. - Provided valued advice on institutional and governance reforms and integration of debt management into macroeconomic policy formulation and implementation. - Case studies show technical assistance tailored to country needs and sustained improvements in integrating debt management into overall economic policy formulation. - For some countries, risk exposure indicators improved even as debt levels increased. ### Implications for capacity building and future needs - An increasing number of countries have market access and face potential realization of contingent claims; consequently, the MTDS framework needs to consider: - Additional risk factors. - More diverse scenarios and market risk metrics. - A wider range of strategies. - Countries are heterogeneous in needs: - Some will require more sophisticated techniques to analyze cost-risk trade-offs and to implement chosen strategies. - Others still need to build a solid foundation for debt management. - Capacity building recommendations: - Continue updating and refining the MTDS framework and modes of delivery while maintaining core functions. - Use a mix of hands-on training and greater use of on-line learning (including MOOC) to enhance effectiveness and efficiency. - Adopt a more “programmatic” approach where appropriate: diagnosis followed by an actionable reform plan supported by tailored technical assistance. - Emphasize sustained client ownership for long-term institutional capacity building. - The Boards are asked for their views on priorities in a strategy for future development of capacity building and how best to ensure that improvements in debt management are sustained. _Executive Summary, Medium-Term Debt Management Strategy, June 9, 2017._ ### 8. There has been increased emphasis on debt management in IMF-WB policy ### 8. There has been increased emphasis on debt management in IMF-WB policy frameworks ### Policy and analytical developments - Revised IMF and WB Guidelines for Public Debt Management (2014) stressed the importance of having a DMS to avoid risky debt structures. - Introduction and linkage of analytical tools: - Market access country debt sustainability analysis (MAC DSA) and ongoing review/update of the Low-Income Country Debt Sustainability Framework (LIC-DSF). The MAC DSA includes five indicators of debt structure characteristics relating to maturity, currency composition, spreads, investor base and total external financing requirement in the analysis of debt distress. - The MTDS and DSA tools are complements: the DSA is a monitoring tool aimed at highlighting debt vulnerabilities for a given debt structure and strategy; the MTDS is a policy tool to help authorities adjust strategy to address debt profile-related vulnerabilities highlighted in the DSA and meet broader cost-risk objectives. - IMF’s Public Debt Limits Policy in IMF-Supported Programs (effective June 2015) uses an assessment of debt management capacity in determining the debt limit under a program. - Public Investment Management Assessment (PIMA) Framework emphasizes that all costs (including debt service costs) associated with public investment projects should be published. - World Bank’s revised non-concessional borrowing policy (NCBP) uses findings from the Debt Management Performance Assessment (DeMPA) tool to provide options regarding the type of non-concessional borrowing ceiling under the NCBP. ### International support and agendas - The G20 endorsed an action plan to support development of local currency bond markets (LCBMs), which involves elements of sound debt management. Under this action plan, the IMF, the WB, the EBRD, and OECD prepared a diagnostic framework to identify preconditions, key components, and constraints for successful LCBM development; sound debt management is one such element. - The United Nations Addis Ababa Action Agenda on Financing for Development concludes that borrowing is critical for financing investment and reaching sustainable development goals; in that context, prudent debt management and strengthening debt management capacity and analytical tools were highlighted. ### Rationale for reviewing capacity building - The increased attention to debt management and its growing importance for many EMDCs and LIDCs suggests that a review of capacity building in this area is timely. - Sections of the source document: - Section II documents and reviews capacity building efforts in MTDS and related fields, including data on resources and delivery; range of technical assistance recommendations and themes; innovations in content and modalities. - Section III assesses evidence on the effectiveness of technical assistance, using recipient-country questionnaire responses and quantitative/qualitative measures. - Section IV draws lessons for future efforts and issues for discussion. ### Technical assistance: scale, geographic coverage, and modalities - Volume and coverage: - Over 100 WB and IMF technical assistance missions on MTDS since 2008. - About half of missions have been to Africa, and a quarter to Latin America and the Caribbean; all regions have received missions. - Many middle-income and some high-income countries are recipients; countries typically request assistance once they start to have international market access and develop a domestic debt market. - Pace and pipeline: - Over 10 MTDS technical missions are delivered in a typical year. - In 2016, 18 MTDS technical assistance missions were completed. - There is currently a strong “pipeline” of outstanding requests. - Training and outreach: - Bilateral missions are supported by regional, international, and on-line training. - Typically, about 30 national officials take part in each training event. - Since 2008 over 27 dedicated MTDS training events have been held in all regions. - An additional 8 more general trainings on debt management have incorporated selected elements of MTDS training. - Online training: - Since 2013, ten offerings have been made of the two online courses on debt sustainability and debt management. - More than 6,400 participants were involved in the courses. - A total of 3,629 participants were awarded course certificates (more than half of which were government officials). - Several hundred government officials have accessed online material ahead of MTDS missions. - The WB offers twice yearly a facilitated on-line DeMPA course, covering MTDS and DSF fundamentals. - Regional and implementing partners: - The DMF II facility finances “implementing partners” whose staff participate in MTDS technical assistance missions and host MTDS training events. - Implementing partners include regional institutions (examples listed); in Africa, MEFMI and WAIFEM have delivered MTDS workshops. - Long-term experts in IMF regional technical assistance centers have increasingly incorporated MTDS into work programs. ### Monitoring, assessment, and complementarity - DeMPA tool: - DeMPA is applied in many countries to assess strengths and weaknesses in debt management, including debt recording capacity, and to define and benchmark reforms. - The DeMPA framework is used in implementing the IMF’s Public Debt Limits Policy. - Complementary technical assistance aims and areas (frequently provided alongside MTDS capacity building): - Strengthening public debt and associated risk management capacity. - Establishing requisite institutions, including centralization of public debt management functions in one office/unit of the Ministry of Finance, with suitable operational independence and accountability. - Putting in place appropriate legal frameworks for debt operations and debt market functions. - Deepening domestic primary and secondary debt markets (e.g., establishing a primary dealer network; instituting reliable settlement and depository services). - Developing securities markets generally, refining monetary policy operations, and issuing/enforcing regulation and oversight frameworks. - Managing contingent liabilities, including those from public-private partnership investments. - Improving government cash and public investment management. - Ensuring timely and reliable recording of government debt data and availability of government debt statistics; identifying institutional coverage reported in accordance with Government Finance Statistics Manual 2014 and the 2011 Public Sector Debt Statistics: A Guide for Compliers and Users (revised 2013) is a specific issue. - Ensuring timely payment of debt service obligations. - Preparing, developing and implementing rules-based fiscal frameworks. - Building capacity to apply the debt sustainability framework and undertake debt sustainability analysis. - Interdependence: - Capacity to prepare a DMS based on MTDS is most beneficial when a country has adequate capacity in formulation and implementation of monetary, financial, and fiscal policies; institutional and legal reforms and well-functioning domestic markets may be required for full MTDS effectiveness. ### Donor funding and programs - Debt Management Facility (DMF) trust fund: - DMF is a multi-donor trust fund currently supported by Austria, African Development Bank, Germany, The Netherlands, Norway, the Russian Federation and Switzerland. - Objective: strengthening debt management capacity and institutions. - DMF works with all LIDCs, IDA-eligible and PRGT countries (84 in all). - From inception to end-FY16, the DMF supported over 230 missions across 75 countries and twenty sub-national governments, and trained over 800 client practitioners. - DMF activities include country missions, training events, on-line courses, outreach programs, research and development, peer learning, and outreach (DMF Stakeholders Forum, Debt Managers’ Network, quarterly DMF newsletter, Debt Management Practitioners' Program). - New DMF activities include strengthening capacity in the Joint Bank-IMF Debt Sustainability Framework, domestic debt market development, sub-national debt management, risk management, and international capital markets access. - Government Debt and Risk Management Program: - Implemented by the WB and supported by Switzerland. - Covers Azerbaijan, Colombia, Egypt, Indonesia, Ghana, Macedonia, Peru, Serbia, South Africa, Tunisia and Vietnam. - Provides medium-term technical assistance with tailored reform plans over a 3- to 5-year engagement in governance, risk management, strategy design and implementation, debt market development, contingent liabilities management, and asset and liability management. - Other donor contributions: - Regional advisors on debt management are hosted by IMF regional technical assistance centers and supported by donors to those centers. - The Canadian Department of Foreign Affairs, Trade and Development has supported a resident advisor in the Caribbean. - Some donors provide support in kind (e.g., MTDS training session in December 2016 held in Tokyo, facilitated by the Japanese International Cooperation Agency). *Source: IMF-WB material on Medium-Term Debt Management Strategy and related capacity building efforts.* ### 19. The modalities of technical assistance missions were adjusted to increase effectiveness, ### 19. The modalities of technical assistance missions were adjusted to increase effectiveness, ### Modalities of technical assistance missions - Earlier missions focused on preparing and presenting a main report. Starting in 2011, the approach was modified by: - Greater reliance on workshops on MTDS analysis using the AT as part of technical assistance missions. Missions increasingly hold workshops involving hands-on training using country data. The authorities then conduct the analysis and consider alternative debt management strategies, with immediate applicability to their country circumstances. - Increasing reliance on briefings/presentations by the authorities rather than technical meetings. This more participatory approach enhances interactions between the different stakeholders in debt management and promotes internal discussions (strengthening the horizontal communications). - Having the authorities present a draft DMS in the final wrap-up presentation to the senior policy makers. Besides strengthening engagement and ownership, this procedure allows the authorities to gauge their own technical capacities and creates demand for analytic work (strengthening the vertical communications). ### Data preparation and technical steps - Technical assistance missions ensure sufficient time is allocated to prepare the debt database that feeds into the MTDS AT. Understanding the country’s current debt portfolio is the first step to identifying risk priorities. - Advance teams assist authorities to analyze debt data and consider options for aggregating them into stylized debt instruments. - Missions conduct training on constructing yield curves, and baseline and risk scenarios for interest rates and exchange rates. Analysis complexity depends on data and capacity. - Where domestic yield curves are not well-developed or do not extend into longer maturities, an implied domestic yield curve is derived, for example, based on an external benchmark yield curve combined with the application of parity relationships. ### Innovations in training modalities - Past basic MTDS courses invited participants (not exceeding 30) from multiple countries (as many as 20 diverse countries). - In 2015, staff developed the “Advanced MTDS and Annual Borrowing Plan (ABP)” training course with features: - Integrated the MTDS and ABP. Participants used the outputs from the MTDS analysis to develop an annual borrowing plan and a debt auction calendar. - Used country data. Rather than fictional data, country representatives brought their own data and worked on their respective country cases. - Invited teams from a limited number of countries. Four to five debt management specialists from a limited number of countries were invited representing the middle, front and back offices of the debt management office (DMO), the budget office, and the central bank, to enhance policy coordination and ensure macroeconomic consistency. - Feedback: structure effective due to practical orientation, utilization of own-country data, focus on relatively advanced issues, and peer-to-peer exchange. ### Online training and language coverage - Innovative online training increased exposure to the IMF-WB toolkits, including the MTDS. - Consideration is being given to making the courses available year-round, and developing additional language modules. ### Results-Based Management Framework - Results-Based Management Framework is used to facilitate monitoring of MTDS technical assistance by systematizing objectives and tracking outcomes. - For each mission, a logical framework describes development objectives, outcome indicators, verification, and associated risks and mitigants. - A hierarchy of frameworks is established for the DMF II, for capacity building related to the MTDS, for individual projects, and for single missions. - Desired result: enhanced ability of national authorities to prepare their own debt management strategies and to use them to steer debt management operations. - Evidence of achievements: publication by national authorities of a DMS document and improved DeMPA indicators. - Typical risks: shifting government priorities, lack of ownership, and high turn-over of trained staff. ### Technical assistance recommendations and common themes - MTDS technical assistance missions and training courses provide overarching recommendations on designing, producing and documenting a DMS based on analysis of a range of options and scenarios. - Teams jointly with country authorities conduct comprehensive analysis of existing debt portfolios, recent macroeconomic developments and medium-term projections, financing choices, baseline and shock pricing assumptions, and overall cost and risk implications over the medium-term. - The framework provides strategy options and an approach to assess costs and risks under various market scenarios; selection of a specific strategy depends on authorities’ judgement and risk preferences. - Missions typically analyze need for complementary reforms to strengthen institutional capacity and deepen domestic debt markets; common recommendation: improvements in record keeping and regular compilation of needed data. ### Adaptation to country-specific needs - Review of country cases and questionnaire responses stressed adapting technical assistance to country needs. MTDS analysis has been extended to: - Analyzing jointly government assets and liabilities, particularly relevant for commodity exporting countries. - Incorporating risks related to state owned enterprises (SOEs) liabilities where quasi-fiscal activities are significant. - Applying the MTDS framework to sub-national debt in a confederal system. - Taking into account debt related to leasing obligations. - Exploring liability management operations. - Basing development of more complex, stochastic models of debt dynamics on the MTDS framework. ### Framework development and enhancements - MTDS AT has been updated to be more adaptable, transparent, and user-friendly by: - Introduction of operational financing targets as policy anchors and constraints to constrain financing choices. - Addition of more customizable features: assess impact of liability management operations (buyback and exchange), accumulation and use of cash buffers, expansion of the number of debt instruments from 15 to 20 instruments. - Planned additional features: account for interest costs for intra-year borrowing; track cost and risk indicators over a longer time horizon; develop an ABP consistent with the DMS. - Enhancement of transparency: AT built on excel spreadsheet; all equations are tractable; AT is not menu driven to avoid becoming a black box. ### Challenges and emerging issues - Capacity building often starts with “getting the basics right,” but evolving needs arise as countries develop debt management capacity and markets. - Questionnaire identified priorities for more detailed advice: - Expanding the scope of public debt covered by the strategy. In over three quarters of responding countries, the current strategy is limited to central government debt. - Incorporation of contingent liabilities. Less than half of respondents include explicit central government guarantees in the analysis. - Ensuring more consistent implementation of the DMS. In over one third of the countries, actual borrowing decisions are not informed by the strategy document. About one fifth of the countries do not complement the strategy with a detailed annual borrowing plan. - Construction of well-targeted macro-financial scenarios that are tractable but well-calibrated, and use of diverse risk metrics. Data preparation is often one of the greatest practical challenges. - Transition from qualitative guidelines to quantitative benchmarks for key risk indicators. ### Innovative instruments and limitations of the AT - Some EMDCs have begun introducing instruments other than conventional loans and bonds. MTDS AT can accommodate: - Sukuk (bonds in Islamic finance) — their use requires adjustment in legal and operational frameworks, especially in non-Islamic jurisdictions. - Green bonds — disclosure ex ante and ex post verification of “green” features remain challenging. - Debt-for-nature swaps — used for generating funding for environmental programs. - State Contingent Debt Instruments and hedges cannot be accommodated within the AT and should be treated outside it to retain simplicity and transparency. - Many EMDCs and LIDCs could benefit from linking debt servicing to state variables capturing ability to pay (GDP, commodity price, export performance), either through “bundled” instruments or hedges. ### Contingent liabilities and diagnostic needs - Government contingent liabilities are a source of fiscal risks that can become prominent in government debt portfolios; they arise from bank support during crises and from off-budget borrowing and guarantees for infrastructure and public services. - There is a need to develop more targeted diagnostic tools and provide dedicated technical assistance to feed into MTDS analysis. - Analyzing contingent liabilities often goes beyond the debt manager’s explicit responsibilities; IMF and WB tools such as PPP Fiscal Risk Assessment Model and the Debt, Investment and Growth model can assist. ### Program integration and financial programming linkages - Staff have integrated the MTDS AT into the financial programming exercise for a number of countries to provide an explicit financing file where financing pressures are acute (examples cited include Ghana, Grenada, and Nigeria). - The MTDS (financing) file receives information on the primary balance from the fiscal file, and generates information on (domestic and external) interest payment and amortizations; that information is input into other parts of the framework with mechanisms to represent feedback and ensure consistency. - Exploration of more formal linkages between MTDS analysis and the macro-framework, including the DSA, may help better integration into IMF and WB macro-financial work. ### LIC-DSF update and implications - IMF and WB staff are progressing towards completing the review and update of the LIC-DSF. The new framework would: - Bring more country-specific information into determination of debt thresholds. - Introduce new tools to analyze scenario risks (market exposure, commodities, natural disasters, contingent liabilities). - Introduce tools to assess underlying macro assumptions (including investment-growth relationships). - Provide enhanced guidance on using judgment to complement model-based results. - Effective debt management and use of MTDS results will have a bearing on debt sustainability assessments for many countries. ### Assessing effectiveness — recipient responses and implementation challenges - Questionnaire results: responses from 62 authorities of the 110 to whom the questionnaire was sent. - Majority of countries receiving MTDS technical assistance indicated it helped introduce a structured and coherent approach to designing a DMS. - Main benefits reported: - Increased recognition of the importance of the strategy document and the institutional role of the DMO. - Explicit monitoring of cost and risk indicators raising risk sensitivity among senior officials and broader stakeholders. - More than four-fifths of respondents indicated that they have prepared and published DMS. - Advice on institutional and governance reforms elevated the role of the DMO and integrated debt management into macroeconomic policy formulation and implementation. - Other benefits: improved institutional coordination, revision of the DMS, monitoring of additional debt portfolio cost and risk indicators. - Implementation lags cited: - Weak translation of strategy into operations due to institutional shortcomings, fragmentation of debt management responsibilities, or limited senior official support. - Large turnover of staff at debt management units reduces capacity and necessitates renewed training efforts. - When debt is largely concessional, limited attention is sometimes paid to the selected DMS despite growing availability of financial choices from multilateral development banks. - Timely compilation of necessary information from debt recording databases remains challenging; many countries lack capable, fully functional debt recording systems. Assistance to ensure adequate debt recording is often a precondition for successful MTDS assistance. *Italic: Content derived from pp072817-the-medium-term-debt-management-strategy (PDF chapter/section provided).* ### 36. National authorities viewed the technical assistance delivery mechanisms as ### pp072817-the-medium-term-debt-management-strategy - 36. National authorities viewed the technical assistance delivery mechanisms as ### Technical assistance delivery and perceived usefulness - National authorities viewed the technical assistance delivery mechanisms as appropriate and effective. - Countries ranked formats by helpfulness: national workshops most helpful, followed by international trainings, and regional workshops. - The vast majority of responding countries reported that integrated Debt Sustainability Analysis–MTDS Trainings were helpful. ### Case studies: portfolio composition and risk trade-offs - Case studies for a select group of countries that use the MTDS toolkit and recently received technical assistance illustrate attempts to optimize debt-stock composition (Annex V). - Common patterns across these countries: - Rising debt ratios and greater reliance on external financing. - Improvements in refinancing risk indicators within the available financing envelope. - A marked reduction in the share of debt maturing within one year in certain cases. - Complementary improvements in interest rate risk indicators in many cases. - Evidence that some countries accepted more foreign currency risk in exchange for lower roll-over and interest rate risk. - The MTDS methodology is sufficiently flexible to be applied across a wide spectrum of economic development, market access levels, and confederal levels. - Sustained, multi-pronged capacity building is valuable: building capacity takes time and requires sustained assistance and medium-term commitment from delivering institutions and recipients. - Preliminary evidence suggests EMDCs are especially receptive to a programmatic approach. - Some evidence indicates MTDS technical assistance recommendations have been more effectively implemented when embedded in an IMF-supported adjustment program or a World Bank investment or policy-based operation. ### Quantitative measures of capacity building and implementation - Evidence is limited because of data constraints across time and countries; linking changes in quantitative indicators to specific technical assistance events is difficult. DeMPA scores - DeMPA findings reveal improvement in countries’ ability to prepare and publish debt management strategies. - The number of countries with approved or published DMS has increased; additional countries are fulfilling the quality requirements. - Improvements were also seen in debt recording and the legal framework. - Persistent deficiencies remain in cash management, assessment of loan guarantees, and management of operational risk. - Figure/sample specifics: - The sample includes a total of 31 countries. - A score of A, B, or C indicates a formally approved and publicly available medium-term DMS covering all central government debt is in place. - Table 3 (Changes in DeMPA Detailed Scores — Number of countries): - Quality of the DMS: 1st DeMPA A, B, C = 3; Most recent DeMPA A, B, C = 7. - Decision-making process and publication of the DMS 1/: 1st DeMPA A, B, C = 3; Most recent DeMPA A, B, C = 9. - 1st DeMPA D = 28; Most recent DeMPA D = 24. - Note: This dimension was not assessed for all countries; the sample includes a total of 31 countries. Other measures - World Bank CPIA (Country Policy and Institutional Assessments) scores show improvements on debt policy and debt management in countries that received MTDS intervention. - Between 2008 and 2015, CPIA scores for criteria on debt policy and debt management increased for low- and middle-income countries. - CPIA score correlations: - Countries with CPIA debt management scores of 2.5 or below are classified as fragile and/or small states. - Those with a score of 4.5 and above typically either (i) enjoy middle income levels and access to market-based sources of financing, including IBRD financing; or (ii) have low- and lower-middle income levels with low public debt relative to GDP. - World Bank Debtor Reporting System (DRS) suggests parallel improvement in debt reporting: - Based on end-2015 data, three quarters of these countries were rated satisfactory in adherence to reporting requirements and timetable. - At end-2010 only half met the criteria. - A study combining several indicators finds limited improvement in debt management observed in several countries is attributable mainly to weaknesses in other areas rather than MTDS capacity itself. - Obstacles included fiscal challenges, mandatory civil service rotation policies, and lack of high-level ownership and support. ### Enhancing effectiveness: priorities and program design - Priorities based on questionnaire results: - Stronger involvement of high-level officials to ensure sustained disclosure and implementation of the strategy and maintenance of institutional capacity. - Facilitation of exporting debt data from the debt recording system to the Analytical Tool (AT) to focus effort on debt management analysis. - Greater flexibility and granularity in the AT to allow for more country-specific scenarios. - Expansion of the MTDS framework and the AT to cover possible debt restructuring or liability management operations. - Effectiveness and program design considerations: - Building institutional capacity is a long-term endeavor often requiring a “programmatic” approach and sustained client ownership: diagnosis → actionable reform plan → tailored TA. - Up-front country ownership and political commitment, and commitment from TA providers and donors, are crucial. - Programmatic approach trade-offs: - More suitable for countries needing substantial and extensive support. - One-off engagements risk failed implementation and wasted resources. - Programmatic design entails substantial start-up costs which may be lost if country circumstances change. - Some countries effectively use focused, one-off technical assistance for specific needs. - Mechanisms to implement a programmatic approach: - A commitment (e.g., memorandum of understanding) defining objectives, work areas, timeline, resource allocations, staff retention efforts, progress criteria, and review mechanisms. - More regular follow-up of MTDS capacity development in IMF and WB macro-financial work; regular consultations for monitoring DMS implementation. - Linkage to IMF- or WB-supported programs where debt management is macro-critical, embedding measures in program documents or WB policy-based operations to reinforce sustained commitment and ensure follow-up (program reviews, DPFs, surveillance). ### Conclusions — Lessons from recent capacity building in debt management - MTDS and debt management have been gaining importance in LIDCs and EMDCs; capacity building has evolved in parallel, warranting review. - As a wave of Eurobonds and local-currency bonds issued by LIDCs and EMDCs in the past decade reach maturity and global interest rates start to rise, debt managers will require more intensive TA. - Evidence shows MTDS technical assistance missions and training are effective; IMF-WB capacity building on MTDS is multifaceted, coordinated, and delivered via country-specific TA missions, regional training, and desk-based advice. - Demand remains strong, indicated by recent activities and an outstanding pipeline of requests. - Countries that have made greatest progress typically: - Require MTDS support due to external requirements or complex financing decisions. - Have legal frameworks and coherent institutional setups facilitating exchange among debt managers, Ministry of Finance, the central bank, and market participants. - Generate high-level attention to debt management, enabling analytical capacity building and operational practices (portfolio risk analysis, borrowing calendars, debt reports). - Operational and tactical capacity remains an area needing greater emphasis: - MTDS advice has concentrated on formulation of strategy; complementary focus needed on recording and monitoring public debt where capacity is low. - Transition to advanced issues needed: sovereign asset-liability management, hedging of debt portfolio risks, developing annual borrowing plans and auction calendars, integration into macro framework and financial market surveillance. - Strengthening implementation capacity via support for loan negotiation, market intelligence, investor and rating agency communications, execution process, funding transactions including derivatives. - MTDS implementation must consider debt sustainability risks; capacity building on DSF will complement MTDS advice. - Further development of MTDS and its analytical tool is needed: - Define scope of sovereign debt to be managed appropriately. - For countries prone to natural disasters or commodity price swings, consider adding an analytic framework to choose between insurance and issuing debt. - Contingent liabilities should be taken explicitly into account in DMS development and implementation. - Adapt AT to handle new instruments (e.g., hedging) and strengthen linkages with annual borrowing plans and debt sustainability analysis. - Continued fundamental capacity building is required: - Some LIDCs and EMDCs still have limited ability to formulate a DMS; staff turnover undermines sustained institutional capacity. - Debt management planning is often not well integrated with fiscal policy; operations can be ad hoc. - Fragmentation of responsibilities and difficulty controlling concessional borrowing can disrupt strategy implementation. - Basic training is useful to anticipate future evolution as development accelerates. - Programmatic delivery of MTDS TA and linking to country programs and surveillance where composition of government debt is macro-critical may have advantages: - Up-front understanding between country and assistance providers acknowledging ownership and a capacity development plan is beneficial. - Linkages can be embedded in program documents, structural benchmarks, post-program monitoring, and WB lending operations. - Proposed revision to the LIC-DSF provides a context to raise the visibility of debt management and the MTDS framework in bilateral surveillance. *Source: pp072817-the-medium-term-debt-management-strategy - 36. National authorities viewed the technical assistance delivery mechanisms as* ### 54. Sustained support from donors, the WB and the IMF will be needed to deliver and ### The Medium-Term Debt Management Strategy: An Assessment of Recent Capacity Building — Annexes ### Sustained support for capacity building - Sustained support from donors, the WB and the IMF will be needed to deliver and enhance capacity building in debt management. - Technical assistance and training—especially that targeted at LIDCs—has been funded largely by donors’ contributions. - Steady support, including from the WB and the IMF, is a condition for on-going delivery and in particular for: - the further development of the MTDS framework; and - the more widespread adoption of a programmatic approach to capacity building. - This support is equally important for EMDCs, where donor funding and scope for reimbursable advisory services are limited. ### Issues for discussion (Board feedback sought) - Does the Board support further development of the MTDS, with more focus on, scenario construction, and market risk indicators? - Does the Board favor the delivery of MTDS capacity building using a longer-term programmatic approach, whereby countries commit in advance to a reform strategy and implementation? - Does the Board support stronger integration of the MTDS capacity development into macro-financial work and the recognition of contingent liability risks, in some cases in IMF and WB supported-programs? ### MTDS framework — key steps and purposes - Step 1. Identify the objectives for public debt management and the scope of the MTDS. - Identify main objectives (examples): Meet the financing needs; Minimize cost; Maintain risk at a prudent level; Develop the domestic debt market; Establish a reference or benchmark for private sector issuance. - Define scope: Central government, general government, or wider public sector; Contingent liabilities. - Step 2. Identify the current debt management strategy and cost and risk of existing debt. - Explicitly identify the current strategy; Identify outstanding debt and its composition; Calculate basic cost and risk indicators. - Step 3. Identify and analyze potential funding sources, including cost and risk characteristics. - List existing and potential instruments, domestic and external; Evaluate potential quantum of borrowing; Identify constraints; Discuss instruments based on cost/risk characteristics. - Step 4. Identify baseline projections and risk in key policy areas—fiscal, monetary, external and market. - Identify baseline medium-term projections for key fiscal and monetary variables; Clarify assumptions about pricing of non-market instruments; Determine specific risk scenarios (e.g., those identified in DSF; shock to global liquidity conditions). - Step 5. Review longer-term structural factors. - Consider commodity price vulnerability; Access to concessional financing; Trends in real effective exchange rate; Inflation trends. - Step 6. Assess and rank alternative debt management strategies on the basis of the cost-risk trade-off. - For alternative strategies: Assess how costs change under various risk scenarios; Assess mitigation of portfolio vulnerabilities; Assess alignment with debt management objectives; Assess feasibility given financing sources. - Step 7. Review implications of candidate strategies with fiscal and monetary policy authorities, and for market development. - Confirm consistency with fiscal and monetary policies and with DSA; Review potential debt market implications. - Step 8. Propose and Approve the MTDS. - Document preferred and alternative strategies; Present the proposal to the highest responsible authority; Agree the MTDS; Disseminate the agreed MTDS. ### DeMPA framework and results — diagnostics and outcomes - DeMPA tool: - Launched February 2008; revised in 2009 and 2014. - Comprises 14 debt management performance indicators (DPIs) and 33 subordinate dimensions across five core areas: Governance and strategy development; Coordination with macroeconomic policies; Borrowing and related financing activities; Cash flow forecasting and cash balance management; Debt recording and operational risk management. - Coverage and use: - By end-2016, 113 DeMPA missions had been fielded in 78 countries, of which 31 countries have received repeated assessments. - More than 80 percent of beneficiary countries are low or lower-middle income countries. - DeMPA findings contributed to the development of debt management reform plans in over 46 countries. - Areas of progress and remaining weaknesses: - Coordination with macroeconomic policies is generally relatively strong. - Governance (including DMS) and capacity in borrowing operations have been improving. - Debt recording and operational risk management show significant improvements, though they remain one of the weaker core functions across several debt offices. - Cash flow forecasting and cash flow management show weak and stagnant scores, suggesting technical capacity deficits and deeper structural issues with budget formation and execution. - Table III.1 — Comparison of Scores from Countries with repeated DeMPAs (In percent) - Overall: Up-grade 16; Down-grade 8; Stable 69; Share of score A, B, or C Latest DeMPA 37; First DeMPA 29. - I. Governance and Strategy Development: Up-grade 15; Down-grade 8; Stable 65; Share of score A, B, or C Latest DeMPA 39; First DeMPA 29. - II. Coordination w/ Macroeconomic Policies: Up-grade 19; Down-grade 15; Stable 61; Share of score A, B, or C Latest DeMPA 58; First DeMPA 57. - III. Borrowing and Related Financing Activities: Up-grade 12; Down-grade 4; Stable 74; Share of score A, B, or C Latest DeMPA 33; First DeMPA 27. - IV. Cash Flow Forecasting and Cash Balance Management: Up-grade 6; Down-grade 5; Stable 87; Share of score A, B, or C Latest DeMPA 13; First DeMPA 15. - V. Debt Recording and Operational Risk Management: Up-grade 21; Down-grade 9; Stable 69; Share of score A, B, or C Latest DeMPA 30; First DeMPA 17. - Notes on Table III.1: - The sample includes a total of 78 countries. - A score of A, B, or C means that a formally approved and publicly available medium-term DMS, covering all central government debt, is in place. The DMS strategy should contain a discussion of the evolution of interest rate, refinancing, and foreign currency risk, and the opinion of the Central Bank are obtained. - A score of D applies if a medium-term DMS is not in place or the quality is not sufficient, the decision-making process is not sufficient, and/or the DMS is not published. - Figure III.1: - Includes information of the assessments of 15 subnational governments and 78 sovereign governments. *Prepared by Apostolos Apostolou, Tadeusz Galeza, Thordur Jonasson, Michael Papaioannou, Miriam Tamene, Eriko Togo (Monetary and Capital Markets Department, IMF), and Emre Balibek, Sebastian Essl, Lars Jessen, and Antonio Velandia (WB); Approved by Peter Dattels (IMF) and Jan Walliser (WB).* ### 4. The increasing importance of subnational borrowing led to the development of the ### pp072817-the-medium-term-debt-management-strategy - 4. The increasing importance of subnational borrowing led to the development of the ### Subnational DeMPA: scope, application, and results - The Subnational DeMPA (August 2012, revised in December 2016) comprises 13 DPIs and 31 dimensions. - Applied across 15 subnational governments: - five in Sub-Saharan Africa, - three in South Asia, - two each across LAC and EAP. - Results reveal significant gaps in most key debt management areas, except for: - debt recording, - legal frameworks, - managerial structure. - Caveat: the sample is small and may be biased towards countries with highly developed institutional arrangements for managing subnational debt. ### Annex IV — Detailed Questionnaire Results: coverage and response - Questionnaire sent to 110 countries (including those that have not benefited from MTDS TA). - Responses: 62 of the 110 countries responded, of which 37 received MTDS TA. - The questionnaire touched on six broad areas and asked respondents to rate aspects of their debt management activities and related TA; all questions sought additional comments. ### Annex IV — Key findings from the DMS questionnaire - 1. Most countries indicated having in place a formal debt management strategy. For those without one, they cited lack of expertise and limited human resources as the main reasons. Many without a formal DMS mentioned a passive strategy that maximized concessional borrowing before resorting to domestic debt issuance. - 2. The majority of respondents confirmed the publication of DMS report. DMS documents are regularly published either as an independent document or as an attachment to the annual budget. Publication benefits cited: promoting transparency and accountability; providing leverage to implement the selected strategy; facilitating communication with market participants and other stakeholders. - 3. In many cases, the formulation of DMS was underpinned by a dedicated legal framework. One third of respondents confirmed the requirement by law to prepare a DMS. Approval by the highest authorities (Cabinet, Council of Ministries or the Minister of Finance) was obtained in almost all cases. - 4. Debt management strategies varied across countries, reflecting differences in debt portfolio risks and differences by horizon and scope of debt: - Principal factors determining countries’ DMS: cost and risks features of existing debt portfolio. Market risks ranked top (refinancing, exchange rate, interest rate, and liquidity), followed by risks from contingent liabilities. Operational risk highlighted as a source of risk for the functioning of the government bond market. - Horizon of DMS: common period is 3 years; period ranged from 3 to 5 years, with annual review in many cases. Exception: low-income countries, where review took place less frequently. - Coverage default: central government debt. A few countries incorporated consolidated public sector debt; consideration of guaranteed loans was rare. - 5. Execution of a strategy largely depended on the capacity to develop an annual borrowing plan (ABP). Some countries planned ABP based on adopted DMS, but actual borrowing diverged due to factors outside debt managers’ control (fiscal slippage, delay in implementation of large projects, ministerial decisions). Lack of capacity to develop an ABP consistent with the DMS was a reason for inconsistency. - 6. Formulation of MTDS was often supported by quantitative analysis, including the MTDS Analytical Tool (AT). Countries not using the MTDS AT reported owning internal quantitative models. Challenges in using the MTDS AT included: - projecting baseline interest and exchange rates; - determining shock scenarios; - ensuring consistency with the macroeconomic framework. - Main challenge: difficulty of obtaining fiscal and macroeconomic data and the time it took to set up the AT. - 7. Understaffing and lack of technical expertise undermine DMS development. High staff turnover hindered capacity retention; debt management offices seldom fully staffed. Lack of support from higher management reported. - 8. Countries that received TA from IMF and WB found workshops and international trainings most helpful. The Debt Management Practitioners’ Program is popular among participants. ### Annex IV — Selected quantitative and categorical findings (preserved presentation) - a. Published DMS Document (in percent): categories shown by income groups — DMS Document Not Published; DMS Document Published with the Budget; DMS Document Stand Alone. (Figure IV.2a referenced.) - b. Legal framework supports the development of DMS (in percent): - High Income 91 - Upper Middle Income 76 - Lower middle Income 95 - Low Income 85 - c. DMS Risk Indicators by Importance (in percent): Refinancing risk 27; Liquidity risk 20; Exchange rate risk 24; Contingent liabilities 11; Interest rate risk 18. - d. Annual Borrowing Plan Based on DMS (in percent): categories by income groups — Separate from DMS; Linked to DMS (figure shows variation across income groups). - e. Usefulness of the MTDS AT (in percent): aspects rated across income groups include Ensuring Consistency with...; Identifying Realistic Strategies; Inputting Data; Formulating Scenarios; Presenting Outputs; Cost-Risk Analysis (figure shows variation across income groups). - f. Effectiveness of MTDS TA (in percent): delivery modalities and helpfulness — International training, Regional workshops, National workshops, DSA/MTDS on-line courses, DMF Practitioners’ Program. Note: Figures do not add up to 100 as "Not Applicable" responses have been excluded. ### Annex V — Case Studies: TA components and adaptation to country circumstances - Analysis based on detailed examination of eighteen MTDS country missions delivered between 2008 and 2016. - TA missions covered the first six steps of the MTDS framework (see Annex I) and adapted analyses to country-specific circumstances. - Examples of adaptations (Table V.1): - Scope of debt: incorporated broader public sector debt, including liabilities of state owned enterprises and potential liabilities from public private partnerships. - Structural factors: considered sensitivity factors such as collapse in relevant commodity prices. - Potential funding sources: viability of tapping the international market (Eurobond issuances) and inflation-linked bonds. ### Annex V — Shock scenarios, calibration, and interest/FX treatment - MTDS AT allows five scenarios, including the baseline, by varying interest and exchange rate risks. Shocks generally applied in the second year of the MTDS analysis period. - Exchange rate shocks: - Extreme exchange rate shock usually set at 30 percent, guided by the LIC-DSF. - Moderate exchange rate shock usually in the range of 15–20 percent, against major currencies. - In Zambia and Kyrgyz Republic, shocks calibrated based on historical data where depreciations exceeded those levels. - Exchange rate shocks included in countries with fixed exchange rate regimes to illustrate budgetary impact of adjustments. - Interest rate shocks: - Linked to borrowing instruments; baseline projections for capital market instruments generally based on forward yield curves, with shocks as parallel shifts or slope changes. - Loans from concessional multilateral institutions rarely subjected to interest rate shocks. - Bilateral loans considered case by case. - TA mission teams and authorities determined size and timing of shocks. Mission reports avoided sensitive rationales and did not elaborate on probability of market shocks materializing. ### Annex V — Analysis of borrowing strategies and recommendations - Alternative borrowing strategies identified through discussion with officials. - Common themes: - Cost-risk trade-off between lengthening maturity of domestic securities (higher cost, lower refinancing risk) and relying on short-term securities (lower cost, higher refinancing risk). - Aspiration to gradually extend maturity profile of domestic debt. - Introduction of new instruments in some countries: inflation-linked bond (Zambia); diaspora bonds and Sukuk (Nigeria). - External debt topics: assessing Eurobond issuances; debut Eurobond analysis for Uganda and Ethiopia. - Mitigation options: amortizing bonds (Zambia); accessing commercial loans (Benin). - TA recommendations focused on measures to improve DMS analysis, decision-making, institutional changes, and policy actions—without prescribing specific market operations. Selected recommendations (Table V.2) include: - DMS formulation, implementation, and communication: Publish and update the DMS; Align DMS with the medium-term fiscal framework; Ensure budget statement includes the DMS approved by the Cabinet; Present MTDS analysis to senior management recommending a specific strategy; Extend coverage to include explicit guaranteed debt; Improve coordination across public debt management units and with Central Bank; Increase investor communications; Develop an ABP consistent with the DMS. - Cost-risk analysis: Maximize concessional financing; Ensure balance of concessional and non-concessional financing; Monitor refinancing risk related to international market issuance; Establish broad targets for debt portfolio risk indicators; Increase domestic debt issuance combined with semi-concessional financing. - Institutional: Review debt management laws to clarify objectives and DMS mandate; Establish a DMO with front, middle and strong back-office function; Appoint and train staff; Strengthen analytical capacity. - Data-related: Consolidate and reconcile debt and government guarantees into a single debt recording system; Publish a debt statistical bulletin; Enhance monitoring of contingent liabilities and reporting of SOE debt; Cover all government accounts; Improve capacity in cash flow forecasting. - Market development: Reduce market fragmentation; develop investor base; revise primary dealers’ framework; avoid administered rates; inform market participants when Treasury bills are issued for deficit financing and for sterilization; establish price reporting of secondary market transactions; introduce quarterly auction calendar. ### Annex V — TA effectiveness and hindrances - TA mission reports associated with improvements in debt portfolio structures and cost-risk indicators (association not causation). Improvements noted despite external/macro deterioration or increased total debt stock. - Debt to GDP ratios increased considerably between 2010 and 2015 in 13 of the 18 select countries; average increase around 10 percentage points in three years (with wide variation). Surge more significant in countries with high foreign currency debt and substantial currency depreciation (Ghana and Zambia, Mongolia, and Mozambique). - Several countries resorted to Eurobond issuance between 2012–2015 (examples noted in TA reports). - External debt continues to dominate portfolios in countries relying on concessional financing (Kyrgyz Republic, Malawi, Mozambique). Opposite in countries with access to larger investor base or more developed domestic markets (Benin, Ivory Coast, Kenya, Vietnam, Pakistan). - In the set of countries studied: - Foreign exchange risk decreased or was stable in 12 of the 18 countries. - Interest rate risk decreased or was stable in 13 of the 18 countries (mainly from increased issuance of fixed rate debt). - Refinancing risk was reduced in 13 of the 18 countries due to longer maturities, but deteriorated in 5 countries that had to resort to shorter maturities. *International Monetary Fund — pp072817-the-medium-term-debt-management-strategy (selected annexes and sections as provided)* ### 10. The TA missions identified a range of capacity related challenges that impact ### pp072817-the-medium-term-debt-management-strategy - 10. The TA missions identified a range of capacity related challenges that impact ### Capacity constraints affecting MTDS analysis - The processing of compiling debt portfolio data for analytical purposes posed a hurdle for some countries with implications for the MTDS TA. Looking ahead, additional TA efforts on debt recording and basic cost and risk monitoring would be helpful. - Deploying the required skills to utilize the Analytical Tool (AT) was challenging for some low-income countries. Looking ahead, a simplified version of the AT, particularly for countries with a large share of concessional debt, could be sufficient and significantly easier to implement. ### Institutional weaknesses and implementation gaps - Some countries had an approved DMS but were unable to execute it due to coordination and institutional deficiencies: - Where SOEs are significant, coordination within the public sector is needed (Ethiopia, Mozambique). - Institutional mechanisms to approve, update and monitor the strategy were lacking in several cases (Tanzania, Mongolia and several others). - Capacity to develop annual borrowing plans was also a factor. - Future TA priorities: - Linking DMS with annual borrowing plans. - Assistance on strengthening the overall institutional framework for debt management. ### Need for sustained, programmatic TA - Experience suggests countries benefit from capacity development over longer periods. - Each TA mission should ideally build on previous missions to address persistent challenges and ensure continuity. - To maintain TA effectiveness: - Assess the implementation status of previous TA recommendations. - Confirm full commitment from the authorities prior to and during TA engagement. ### Topical case studies — Ghana - MTDS TA contributed to developing a financing strategy consistent with the medium-term macroeconomic framework. - Prior reliance on domestic financing led to significant drawings from the overdraft facility, accumulation of arrears, high inflation, high domestic interest rates, and rapid and large depreciation of the local currency. - By 2014, non-resident inflows had halted and residual domestic financing relied on Treasury bills. - Policy response: mid-year revised fiscal framework and supplementary budget rebalanced share of external and domestic borrowing; strategy approved by Cabinet and published, satisfying the structural benchmark. - Over the medium-term, DMS envisioned a gradual return to greater reliance on domestic financing; priority actions included deepening primary and secondary markets, market infrastructure, operating environment, and risk management to reduce domestic refinancing risk. - Non-resident investors returned in significant volume beginning in late 2016, enabling lengthening domestic maturities and reducing refinancing risk. ### Topical case studies — Indonesia - Indonesia used the MTDS AT as a springboard to develop in-house tools. - Directorate General of Financing and Risk Management applied MTDS AT in 2012 and then built a MTDS AT replica in Matlab. - Developed a deterministic model with greater instrument granularity and a stochastic version for richer outputs; both models applied side by side. - Outcome: substantially increased analytical capacity in the debt management office. ### Topical case studies — Bosnia Herzegovina (BiH) - MTDS framework and AT applied in a subnational context with two Entities (FBiH and RS) having constitutional borrowing rights. - Adopted a “bottoms up” approach where Entity-level borrowing strategies dictated State-level strategy. - Outcomes: improvements in borrowing stance and debt management practices at Entity level; by 2015 all Entities published their DMS; by late 2016 RS presented its 2017 auction calendar after FBiH had adopted the practice. ### Topical case studies — Nigeria - MTDS TA supported analysis of central government asset and liability portfolios. - Nigeria’s fiscal rule uses a predetermined “budget oil price”; excess realized oil price revenue is saved in a fund. - MTDS mission illustrated analysis of public debt path accounting for asset accumulation and how net debt evolved under different budget oil price assumptions and relative interest rates on assets and liabilities. - Outcome: generated discussions on circumstances when asset accumulation might make sense despite cost of carry and when to reduce balance sheet size. ### Topical case studies — Ethiopia - MTDS AT captured SOE-related debt management issues; SOEs play a critical role in public investments and borrowing. - Central government fiscal framework comprises a small portion of total public expenditure execution. - MTDS TA found higher vulnerabilities when including SOE debt because of SOEs’ reliance on commercial debt versus central government concessional borrowing. - Public debt ratio including SOE debt was on a steeper upward trajectory. ### Topical case studies — Tanzania - MTDS TA incorporated public-private partnership transactions into analysis. - Government accumulated debt-like obligations via pension fund investments and lease-type “fixed rental payments” over 15 years that effectively comprised interest and principal but were not recognized upfront as debt. - These payments were recorded under health and education expenditures, misleading sector budget allocations. - MTDS assistance recommended recognizing these obligations as debt and reclassifying expenditures to interest payments; supported decision to cease entering non-transparent deals. ### Country case studies — Kyrgyz Republic Background and approach - Received two TA missions (2011 and 2016) delivering training in cost-risk analysis and application of the MTDS AT; 2016 mission assisted in updating the DMS and built on 2015 DeMPA-based diagnostic and reform plan. - DMS covering 2015–17 was approved by Cabinet and published; DMS guidelines included: (i) lengthening maturity profile (increasing average time to maturity), and (ii) informing annual financing plans by market consultations. Modeling and shocks - Yield curves (spot and forward) modeled based on US Treasury yield curves with credit spread for credit risk and exchange rate risk based on expected inflation differentials refined to allow gradual depreciation per the Ministry of Finance forecast. - Shock scenarios applied in second year: - Exchange rate shocks set at 40 and 20 percent. - External interest rate shock: increase of US Treasury yields by 200 basis points (bps) for a 1-year maturity and 400 bps for a 10-year maturity. - Domestic interest rate shock spanning 2016 and 2017: parallel shift of the yield curve by 5 percent. Key issues and outcomes - Development of DMS provided guidance for borrowing decisions. - Narrow investor base impeded development of the domestic government securities market and consolidation of government securities into fewer lines. Lessons learned - Given concessional debt have long maturities, currency shocks may have only a mild effect on debt service cash flows, but the effect on the debt size can be more significant. - Missions should assess potential development of domestic government securities markets, focusing on the primary market; short-term cost considerations might favor continued access to concessional funding, but longer-term benefits of market-based borrowing may justify shifts. - Cost-risk analysis can increase awareness of debt portfolio risks and importance of developing government securities markets in the medium term. ### Country case studies — Lebanon Background and approach - TA supported establishment of a debt management unit in the Ministry of Finance using 4–5 peripatetic visits per year, local junior consultants, and remote assistance; DMS development and implementation were integral to TA. - In 2013, Public Debt Directorate developed first DMS (2014–16) which was approved by the High Debt Committee and published; annual borrowing plan presented. - DMS set qualitative goals and covered key developments for 5 years (initially 3 years). Analytical approach and outcomes - MTDS AT provided analytical foundation; initial and subsequent analyses investigated both extreme and realistic scenarios with and without currency shocks despite the currency peg. Key issues and outcomes - Political context challenged public debt management and TA delivery; publication of a DMS based on detailed MTDS analysis was a major development. - Borrowing plans and debt issuance aligned with the DMS. - TA led to technical achievements: creation of an integrated debt management unit, centralized back-office of central government debt, new front and middle offices, capacity built on MTDS and domestic securities issuance; some staff gained expertise using the MTDS AT. Lessons learned - A programmatic approach can be very effective. - Solid implementation of the DMS requires strong high-level support; in principle approval for DMS implementation should be sought from decision-makers prior to TA delivery. ### Country case studies — Uganda Background and approach - Two joint IMF-Bank MTDS missions (April 2013 and December 2015); 2015 mission targeted strengthening capacity and updating DMS. - Legal framework requires annual reporting to Parliament on evaluation of debt management activities against the DMS; Ministry of Finance has updated DMS annually since 2013. - DMS objectives include requirement for evaluation of cost-risk trade-offs for all borrowings. Analytical assumptions and outcomes - 2015 TA focused on reducing cost and risk by maximizing (semi-) concessional financing; strategy for 2015–2020 anticipated gradual increase in non-concessional borrowing. - TA highlighted that strategies relying less on concessional loans could become unavoidable, including Eurobond issuance and more/longer domestic financing. - Shocks: - Exchange rate shocks: standard DSA shocks of 15 and 30 percent in the second year. - Interest rate shock assumed to materialize in second year, taper in third, then fade. Key issues and outcomes - Authorities now capable of formulating a comprehensive DMS. - A DMS was formally approved and published. - Access to concessional financing expected to decline as Uganda’s per capita income surpassed concessional eligibility criteria, prompting Eurobond analysis and new debt management challenges. - Domestic issuance constrained by local market absorption capacity, especially appetite for longer maturities. Lessons learned - Domestic market development issues should be addressed. ### Country case studies — Vietnam Background and outcomes - DMS development was part of a programmatic TA: WB launched a medium-term TA program in January 2014 with DMS design/implementation as a component; MTDS TA delivered in 2014 and 2015. - In 2012, Prime Minister approved Public Debt and National External Debt Strategy 2011–2020 and “Vision toward 2030”; MTDS workshop focused on 2015–2020 six-year analysis. Key issues and outcomes - As Vietnam approaches middle-income status, concessional and semi-concessional financing could become scarce. - Fragmented institutional responsibilities for debt management challenged DMS formulation and implementation. Lessons learned - Widen MTDS missions beyond strict cost-risk analysis when relevant (e.g., domestic market development issues). - Multi-year programmatic approaches can be especially effective. ### Country case studies — Zambia Background and approach - Three MTDS missions (2009, 2014 and 2016) focusing on MTDS capacity building for technical staff in the debt management unit. - 2014 strategies considered more domestic financing, domestic maturity extension, and Eurobond issuance. - 2016 strategies started with maximum (semi-) concessional financing and considered domestic inflation-linked bonds, lengthening average domestic maturity, Eurobond issuance, and domestic market capacity. Shock parameters and outcomes - 2014 extreme exchange rate shock: 30 percent depreciation against the US dollar in the second year (and a more moderate shock against the Chinese yuan); moderate foreign currency shock: 15 percent versus the US dollar. - 2016 mission used extreme and moderate foreign currency shocks of 25 and 50 percent, respectively, based on kwacha’s history; interest rate shocks derived from historical data. Key issues and outcomes - Ministry’s debt management unit produced DMS in 2008 and 2014. - Missions noted challenges in debt recording and reporting despite investment in DMFAS 6. - 2016 report emphasized domestic market development: broaden investor base, strengthen benchmarks, develop secondary market and central bank trading platform. - Lack of progress largely attributed to deterioration in macro-fiscal conditions leading to doubling of public debt; reduction of foreign currency risk hampered by domestic market absorption capacity limiting longer maturities and larger domestic issuance. Lessons learned - Give due attention to debt data collection and preparation prior to MTDS missions. - Address DMS implementation in detail. - Strong early commitment from senior officials contributes to better DMS implementation. - Programmatic approaches combining different training types may enhance effectiveness and secure stronger up-front authority support. *International Monetary Fund. MEDIUM-TERM DEBT MANAGEMENT STRATEGY––ANNEXES (excerpt).* --- _Source: https://www.imf.org/-/media/files/publications/pp/2017/pp072817-the-medium-term-debt-management-strategy.pdf_