Policy Papers

<p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;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 the associated
capacity building efforts. In 2007 the two Boards endorsed the development
of the MTDS and ancillary tools, and mandated a program of technical
assistance to help countries build capacity in this area. This endorsement
and mandate reflect a recognition that sound debt management is critical
both to macroeconomic stability and to the development and functioning of
the financial sector.
</p>
<p>
The IMF and the WB have collaborated to deliver a large volume of
MTDS-based technical assistance to numerous, diverse countries, with a
focus on middle- and lower-income countries. Donors have recognized the
importance of this work and have been generous in their support. The
assistance has taken many forms, including country visits by staff and
experts, the delivery of regional training events, and the organization of
forums. As documented here, modes of delivery have evolved, with greater
emphasis
on tailoring to country circumstances, ownership, and coordination within
and across agencies in the recipient countries.
</p>
<p>
The report and accompanying annexes describe how capacity building on MTDS
has been adapted to keep abreast of country needs. An increasing number of
countries have market access (such as through the issuance of Eurobonds or
local currency bonds), and face the potential realization of contingent
claims, which requires that the MTDS framework consider additional risk
factors; more diverse scenarios and
market risk metrics; and a wider range of strategies. In many countries,
effective capacity building in MTDS was complemented by efforts to
strengthen institutions and governance arrangements; debt recording; and
government cash management. Linkages with the formulation of annual
borrowing plans (ABP) and debt sustainability analysis (DSA) have been
strengthened, but more work is needed. Providing a sustained stream of
support, rather than one-off missions, often produced better results.
Country ownership, often reflected in commitments under IMF- or
WB-supported programs, has proven critical to the sustained enhancement of
debt management capacity.
</p>
<p>
The value and effectiveness of these capacity building efforts are
documented in the report using qualitative and quantitative metrics. The
responses from national authorities to a questionnaire on their experience
with MTDS technical assistance and the evolution of various quantitative
indicators suggest that there were benefits and these were generally
sustained. In particular, the majority of countries that had received
technical assistance indicated that it helped them to introduce a
structured and
coherent approach to designing a debt management strategy (DMS) and raise
awareness of risks among senior officials and broader stakeholders.
Countries also appreciated advice on institutional and governance reforms
and integrating debt management into macroeconomic policy formulation and
implementation. The observations are supported by case studies detailing
how technical assistance was
successfully tailored to country needs. It is shown that many recipient
countries are now better able to integrate debt management into overall
economic policy formulation and adapt their debt management strategies to
changing countries&rsquo; circumstances. For some, risk exposure indicators have
improved even as debt levels have increased.
</p>
<p>
Looking forward, the report suggests that the MTDS framework and modes of
delivery should continue to be updated and refined, while maintaining core
functions. Some countries will need more sophisticated techniques both to
analyze cost-risk trade-offs and to implement their chosen strategy. Others
are still in the process of building a solid foundation for debt
management. In addition to hands-on trainings, greater use of on-line
learning may further enhance effectiveness and efficiency. Building
institutional capacity in debt management is a long-term endeavor, often
times requiring a more &ldquo;programmatic&rdquo; approach, and sustained client
ownership. Such an approach would involve diagnosis followed by an
actionable reform plan supported by tailored technical assistance.
</p>
<p>
The Boards are asked for their views on priorities in a strategy for future
development of capacity building in this area, and how best to ensure that
improvements in debt management are sustained.
</p>