FDMD Okamoto’s Remarks at the 2021 Public Debt Management Forum

June 9, 2021

Thank you for taking the time to join us today. Ordinarily we would do this in person, but this is no ordinary time, particularly for the public debt managers here that are facing unprecedented levels of debt, potential market volatility, and macroeconomic uncertainty. Allow me to make three observations about the overall context for the discussions we will have here today.

First, while the global outlook has improved dramatically thanks to breakthroughs in vaccine development, as well as extraordinary monetary and fiscal support, many risks remain.

A bifurcated recovery that leaves behind the most vulnerable remains a real possibility.

Financial markets may be volatile as monetary policy support is slowly withdrawn, and the threat of overheating and a sustained rise in inflation is something we are all keeping a close eye on.

As debt managers, you know the risks that come with today’s heightened inflation uncertainty, as recent trends may or may not be transitory. This calls for extra vigilance building the resilience of public debt portfolios to inflation surprises. The pandemic has increased this vulnerability as debt stocks today are larger, with shorter maturities and larger rollovers needs.

For Emerging Markets, gross-financing needs remain high, at 14 percent of GDP, while sovereign-bank nexus risks are growing. It is concerning that 60 percent of debt issued after January 2020 has ended up on domestic banks’ balance sheets.

In Advanced Economies, central banks absorbed the massive issuance spike in 2020 and have become the largest creditor in most OECD countries, holding more than 20% of outstanding government bonds in the European Union and United States. But they cannot buy forever. Meanwhile, rollover risks have increased as the share of short-term debt has risen for the first time since the Global Financial Crisis.

This means that as debt managers you must accomplish the Herculean task of finding new financing to cover continued large deficits while managing a much larger and more complex debt portfolio. At the same time, debt management strategies must create sufficient space for the transition back to a sustainable debt trajectory, even if the road to recovery is not as smooth as currently forecast.    

The second observation I’d like to make is that we need to ensure everyone has a fair shot at receiving the vaccine, benefiting from the recovery, and achieving their future goals.[1] To accomplish this, public debt increases are inevitable.

In an environment where Emerging Market debt is projected to reach an average level of 73 percent of GDP by 2026, debt managers must maintain the confidence of the market as you manage large volumes of new issuances and rollovers. In order to do this, strong debt management practices and robust investor relations frameworks will be key.

We at the IMF will continue to support the entire membership through surveillance, tailored advice, policy relevant research, and capacity development so that every country is well prepared to develop the debt and fiscal strategies that will help them chart a course through the pandemic and into a robust recovery. This can be done via our regular policy dialogue, customized technical assistance, or in the context of a Fund programme. 

“Ensuring a fair shot for all” also means tackling debt vulnerabilities early. Where debt is unsustainable, it should be restructured without delay. While gaps remain in the international debt restructuring architecture[2], the G20 Common Framework now provides a new and more inclusive forum for LICs to negotiate debt restructurings. It is imperative that the international community invigorate the Common Framework, and the IMF has committed to provide the technical support needed to achieve this goal. 

Lastly, I would like to stress the importance of debt transparency, especially in these uncertain times.

A lack of transparency increases uncertainty, risk, and borrowing costs: if creditors are not able to determine what a country owes, to whom, and on what terms, creditors cannot make informed decisions. And in a world of increased debt risks, this could be the difference between maintaining and losing market access. The benefits to full transparency can be significant as well. Recent IMF research shows that increased fiscal and debt transparency can more than pay for itself by meaningfully lowering bond spreads for Emerging Markets, and critically important during these uncertain times, it also increases foreign investors’ willingness to hold EM sovereign debt.[3]

As debt managers you must do your part to ensure no doubts exist in the minds of investors in this area.

In conclusion, let me say that as these challenges may seem daunting, they also bring with them a tremendous opportunity for you as debt managers to help pave the way towards a more sustainable and equitable future, as we all work together to exit from the pandemic and return to strong, sustainable and balanced growth. These may be the most difficult times that you will face in your professional careers as debt managers, but also the most important, when your contributions to managing public finances will have the biggest impact on our economic prosperity, now and in the future. We at the IMF stand ready to assist you through all the means at our disposal. Thank you, and I wish you a productive set of discussions.