MANAGEMENT CONSULTANTS

Transcription

1 STORKEY & CO MANAGEMENT CONSULTANTS PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS [SAMPLE TEMPLATE] ACKNOWLEDGEMENT: These sample procedures are available for public use. It would be appreciated that if they are used in whole or in part that there is an acknowledgement that they were developed by Ian Storkey, Director of Storkey & Co Limited.

2 CONTENTS Section/Activity Processes Page No. 1 Introduction 4 2 Background 6 Public Debt Management Institutional Arrangements 6 Roles and Responsibilities of a Debt Management 6 Typical Loan Cycle 7 Structure for Documenting Processes/Workflows 8 Debt Management Operations Business Processes/Workflows 9 Business Process Maps 10 3 Debt Management Operations Business Processes/Workflows 11 Activity 1 Planning 11 Processes 1.1 Debt Strategy Borrowing Plan Debt Service Forecasting 16 Activity 2 External Loans 18 Processes 2.1 Contracting Mobilisation Servicing 28 Activity 3 Domestic Loans 30 Processes 3.1 Contracting Mobilisation Servicing 36 Activity 4 External Securities 39 Processes 4.1 Planning Issuance Servicing 44 Activity 5 Domestic Securities 47 Processes 5.1 Planning Cash Flow and Tenders Settlement of Issue Servicing Retail Securities 56 Activity 6 Reorganisation 59 Processes 6.1 Loans Securities Swaps 67 Activity 7 Analysis 71 Processes 7.1 Debt Sustainability Analysis Cost-Risk Analysis Cash Flow Planning Debt Service Monitoring 76 Activity 8 Reporting 77 Processes 8.1 Government Reporting World Bank Debtor Reporting System Accounting General Ledger Monitoring and Compliance Debt Statistical Bulletin 82 PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 2 OF 98

3 Section/Activity Processes Page No. 8.6 Quarterly/Monthly Debt Reports Form 18-K 85 Activity 9 Guarantees 86 Processes 9.1 Contracting Servicing 90 Activity 10 Onlending 91 Processes 10.1 Contracting Mobilisation Servicing 96 4 Annex Business Process Maps 98 PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 3 OF 98

4 1. INTRODUCTION Debt managers in many countries have difficulty in documenting the business processes for public debt management and often need guidance in terms of a template that can be used as a procedures manual. This template attempts to capture the actual business processes that are followed in a mix of advanced economies, Emerging Market Economies (EMEs) and developing countries covering both external (including contracting; disbursement; debt service and debt restructuring) and domestic debt. To develop a comprehensive generic model that captures best practices, the following countries or regions were examined in 2009 using a combination of desktop studies and field visits: Desktop Studies Eastern and Southern Africa: covering the Procedures Manual published by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) India: covering central government external debt managed by Aid Accounts and Audit Division (AAAD) of the Ministry of Finance as documented in a draft procedures manual Indonesia: covering central government domestic debt managed by the Directorate General of Debt Management/Direktorat Jenderal Pengelolaan Utang (DJPU) of the Ministry of Finance as documented in draft standard operating procedures New Zealand: covering central government debt managed by the New Zealand Debt Management (NZDMO) of the New Zealand Treasury as documented from prior knowledge and discussions with officials from NZDMO Field Visits Brazil: covering central government debt managed by the National Treasury Secretariat (STN) of the Ministry of Finance Hungary: covering central government debt managed by the Government Debt Management Agency Pte Ltd (ÁKK) Nigeria: covering central government debt managed by the Debt Management (DMO) In addition, the business processes/workflows adhere to the principles of sound practice in public debt management that have been published in: Advances in Risk Management for Government Debt by the OECD (2005) Debt Management and Government Securities Markets in the 21 st Century by the OECD (2002) Debt Management Performance Assessment (DeMPA) tool by the World Bank PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 4 OF 98

5 Developing Government Bond Markets: A Handbook by the World Bank and IMF (2001) Developing the Domestic Government Debt Market: From Diagnostics to Reform Implementation by the World Bank (2007) Government Debt Management: New Trends and Challenges by Central Banking Publications (2006) Guidelines for Public Debt Management by the IMF and World Bank (2003) Managing Public Debt: From Diagnostics to Reform Implementation by the World Bank (2007) Manual on Effective Debt Management by the United Nations ESCAP (2006) Sound Practice in Government Debt Management by Graeme Wheeler (2004) Strengthening Debt Management Practices: Lessons from Country Experiences and Issues Going Forward by the World Bank and IMF (2007) Given the diversity of operational practices, institutional arrangements, and organisational and/or personnel structures for public debt management, the challenge was to develop a generic model that best captures this diversity. Therefore, in all processes/workflows the context has been set out so it is clear to understand the operational environment for that process/workflow. The following provides comprehensive public debt management documentation and flowcharts to clearly describe business processes, information flows, authorisation processes, functions and responsibilities within the different debt management institutions (covering front office, middle office and back office operations) as well as between the debt management institutions and external entities such as the Accountant General s, Central Bank and Ministry of Finance. PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 5 OF 98

6 2. BACKGROUND 2.1 PUBLIC DEBT MANAGEMENT INSTITUTIONAL ARRANGEMENTS Institutional arrangements for public debt management can range from a structure that is highly centralised in a debt management office (DMO) or equivalent to a decentralised structure with a number of entities across government responsible for public debt management operations. For example, a separate division of the Ministry of Finance could be responsible for external loan negotiations, the Accountant-General s responsible for debt service payment authorities, and the Central Bank may provide banking services, act as registrar for government securities, and undertake Treasury bill and bond auctions in the domestic market for government securities. Also, there could be a separate agency that is responsible for managing retail debt instruments such as savings bonds or equivalent and separate divisions of the Ministry of Finance responsible for project monitoring including administration of government onlending, and issuance/monitoring of government loan guarantees. Oversight of the DMO will normally be provided by an Advisory Board or Public Debt Committee or Council, which will meet either monthly or quarterly. An Advisory Board does not have responsibility for setting debt management policies and approving financing transactions as these will rest with the Minister of Finance. The Advisory Board will provide oversight to ensure that the DMO is adhering to international sound practice for public debt management and for the efficient operation of the DMO. As the Public Debt Committee or Council is likely to have the Minister of Finance as Chair or a member, it will be responsible for setting debt management policy and approving financing transactions. While the documentation of business processes/workflows is based on a DMO structure for ease and standardisation, the functions managed by the different entities can be substituted into the relevant public debt management operations. Moreover, the structure within a DMO can vary depending on the functions assigned to each division or section. While the DMO structure refers to operations that are the responsibility of the front office, middle office and back office, in practice there could be multiple entities under each of these classifications. The operational environment for each process/workflow will set out the institutional arrangements and organisational structure that has been documented and it may be necessary to modify these arrangements and structures to reflect the public debt management operations that are in place. 2.2 ROLES AND RESPONSIBILITIES OF A DEBT MANAGEMENT OFFICE The methodology used has developed a comprehensive business model for public debt management, which describes information flows, authorisation processes, functions and responsibilities within the different debt management institutions (covering front office, middle office and back office operations) as well as between the debt management institutions and external entities such as the Accountant General s, Central Bank and Ministry of Finance. It also incorporates the PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 6 OF 98

7 principles of sound practice in public debt management that has been published by the IMF and World Bank, Central Banking Publications, OECD and others. The business model has been structured around the following public debt management activities and structures: 2.3 TYPICAL LOAN CYCLE The life cycle of a loan as documented in the Debt Management Performance Assessment (DeMPA) tool has four phases: Planning: Legislation, managerial structure and policy setting, government debt strategy, and coordination mechanisms with macroeconomic policies are in place for the government to borrow and transact Contracting: Negotiating and contracting is undertaken within authorities, limits and in accordance with the debt strategy covering domestic borrowing, external borrowing (multilateral, bilateral and commercial/market), issuing loan guarantees, government onlending, and derivatives where applicable Servicing: Systems and procedures to record, monitor, settle, and account for all debt and debt-related transactions in a secure and controlled environment Reporting: External, internal and audit reporting to ensure transparency and accountability for debt management policy and operations The DeMPA tool is a useful methodology to ensure that the life cycle of a loan and other public debt management operations are fully covered in the business model and flowcharts. PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 7 OF 98

8 2.4 STRUCTURE FOR DOCUMENTING PROCESSES/WORKFLOWS Most of the DMOs in developing countries and emerging market economies have institutional structures and debt management operations that follow a product approach rather than an activity approach. This means that loans are often managed and processed by a unit that is separate from a unit responsible for securities, which are also managed and processed separately from other debt management operations such as government onlending and guarantees. As a result the documentation of business processes/workflows has been structured to match this approach. Therefore, the report is structured according to the following Debt Management Operations activities: 1. Planning 1.1 Debt Strategy 1.2 Borrowing Plan 1.3 Debt Service Forecasting 2. External Loans 2.1 Contracting 2.2 Mobilisation 2.3 Servicing 3 Domestic Loans 3.1 Contracting 3.2 Mobilisation 3.3 Servicing 4. External Securities 4.1 Planning 4.2 Issuance 4.3 Servicing 5. Domestic Securities 5.1 Planning Cash Flow and Tender Program 5.2 Settlement of Issue 5.3 Servicing 5.4 Retail Securities 6. Reorganisation 6.1 Loans 6.2 Securities 6.3 Swaps PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 8 OF 98

9 7. Analysis 7.1 Debt Sustainability Analysis 7.2 Cost-Risk Analysis 7.3 Cash Flow Planning 7.4 Debt Service Monitoring 8. Reporting 8.1 Government Reporting 8.2 World Bank Debtor Reporting System 8.3 Accounting General Ledger 8.4 Monitoring and Compliance 8.5 Debt Statistical Bulletin 8.6 Quarterly/Monthly Debt Reports 8.7 Form 18-K 9. Guarantees 9.1 Contracting 9.2 Servicing 10. Onlending 9.1 Contracting 9.2 Mobilisation 9.3 Servicing 2.5 DEBT MANAGEMENT OPERATIONS BUSINESS PROCESSES/WORKFLOWS The documentation of business processes/workflows draws on three elements: 1. International sound practice business model for public debt management. 2. Life cycle of a loan as defined by the Debt Management Performance Assessment (DeMPA) tool. 3. Business processes followed in a mix of advanced economies, EMEs and developing countries. Flowcharts have been developed to illustrate information flows based on the comprehensive business model for public debt management (prepared in Microsoft Visio using international standard flowchart templates) that cover: inputs and outputs action level by position, function (front, middle or back office) and process owner key controls and important validations/authorisations PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 9 OF 98

10 In addition, the operational environment or context for each process/workflow is provided in order that the assumptions used to capture operational practices, institutional arrangements, and organisational and/or personnel structures for public debt management can be identified. Activities performed by entities outside the DMO are shaded (in green). The report will be used by ComSec to re-engineer CS-DRMS to closely mirror debt management business processes/workflows as documented in Section 3 below. 2.6 BUSINESS PROCESS MAPS The process maps for all activities are provided in Annex 1. These have been developed in Microsoft Visio using standard business workflow models. Where there are links to further process/workflows, these are clearly identified. The process maps show the key control points in each process, and are shaded to show activities and controls that outside the direct operations of the DMO. PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 10 OF 98

11 3. DEBT MANAGEMENT OPERATIONS BUSINESS PROCESSES/WORKFLOWS ACTIVITY 1: PLANNING Prior to contracting loans and issuance of securities, the DMO undertakes several debt planning activities. These include the preparation or update of a Medium Term Debt Strategy (MTDS), an annual borrowing plan including a domestic bond issuance program or calendar, and debt service forecast for incorporation in the Budget, Medium Term Fiscal and Expenditure Framework (MTFF/MTEF) and/or annual appropriation from Parliament or National Assembly. ACTIVITY 1.1 DEBT STRATEGY General Description The DMO prepares or updates a Medium Term Debt Strategy (MTDS) at the start of each fiscal year that is set within the context of the government s fiscal policy and budget framework. The strategy development process will involve key stakeholders across government and include consultation with the Central Bank for consistency with monetary policy. The strategy is reviewed by the Public Debt Committee and ultimately approved at the political level (for example, by the Cabinet/Council of Ministers). The MTDS will be published either within the budget as a separate chapter or as a stand-alone publication, which will be posted to the DMO website. The responsibility for the development of the MTDS will be with the middle office. The MTDS will include the following: objectives and guidelines for government debt management financing requirement of the government for the fiscal year including domestic and foreign currency borrowing requirements description of the market risks being managed (currency, interest-rate, and refinancing/rollover risks) and the historical context for the debt portfolio description of the future environment for debt management, including fiscal and debt projections, assumptions about interest and exchange rates, and constraints on portfolio choice including those relating to market development and the implementation of monetary policy description of the analysis undertaken to support the MTDS clarifying the assumptions used and limitations of the analysis recommended strategy and its rationale, including either: specified targets and ranges for key risk indicators of the portfolio and the financing program over the projected horizon or guidelines to indicate the direction in which certain key indicators are expressed to evolve PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 11 OF 98

12 Business Process/Workflow Preparation or Update of Medium Term Debt Strategy Environment/Context: As part of the government s fiscal policy and budget framework, the DMO is required to prepare or update a Medium Term Debt Strategy (MTDS) at the start of each fiscal year. This is normally a requirement of Public Debt or Public Finance legislation and requires that the MTDS is approved at the political level (Cabinet/ Council of Ministers) and submitted to Parliament/National Assembly. The MTDS will be submitted as a stand-alone document or included in the Budget and/or Medium Term Fiscal Strategy published annually by the government. The MTDS is prepared by the DMO in consultation with the Ministry of Finance, Central Bank, Ministry of Planning, Treasury and Accountant-General s (if these agencies exist) and made available to the public. Ministry of Finance or Treasury Project Implementing Unit Front Provide medium-term primary balance and cashflow projections to the DMO. Provide medium-term economic and financial projections and/or scenarios to the DMO. Provide project utilisation and expected schedule of loan disbursements, and pipeline for new project loans. Provide details of proposed new financing plan for the medium term (i.e., next 3 fiscal years): External financing: - multilateral - bilateral - commercial - market Domestic financing: - Treasury bills - Treasury bonds - retail instruments - commercial banks and Central Bank Projections: - primary balance - monthly cashflows - interest rates - exchange rates - inflation - GDP Scenarios: - baseline - optimistic - pessimistic/stress Forecast disbursements Govt financing requirement Forecast disbursements Draft borrowing plan with list of planned new borrowing PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 12 OF 98

13 Middle Head of Middle Consult with key stakeholders across government: Ministry of Finance, Central Bank, Ministry of Planning, Treasury and Accountant-General s. Undertake cost-risk analysis of public debt portfolio including new/future financing: using model(s) developed by the DMO (examples include Cost-at-Risk, Budget-at-Risk, Debt Service-at-Risk, Cashflowat-Risk, Value-at-Risk) calculating basic risk measures (currency mix, duration, modified duration, fixed/floating interest rate ratio, average time to refixing, redemption profile, average time to maturity, residual maturity, 1-year residual maturity, external debt to foreign exchange reserves ratio) and debt sustainability indicators. Prepare draft MTDS. Check and sign-off draft MTDS. Existing debt Draft borrowing plan Fiscal projections Economic & financial projections/scenarios Forecast disbursements Risk indicators Cost-risk analysis Scenario analysis Debt structure Portfolio benchmarks Portfolio limits Draft MTDS Draft MTDS Signed-off draft MTDS Head of DMO Authorise draft MTDS. Signed-off draft MTDS Public Debt Committee Cabinet/ Council of Ministers Review draft MTDS and recommend acceptance. Submit recommended MTDS to Cabinet/Council of Ministers for approval. Review recommended MTDS and approve. Authorised draft MTDS Authorised draft MTDS Recommended MTDS Recommended MTDS PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 13 OF 98

14 Approved MTDS Middle Arrange for MTDS to be translated (if necessary). Publish MTDS and post to DMO website (in pdf format). Approved MTDS Translated MTDS Published MTDS ACTIVITY 1.2 BORROWING PLAN General Description An annual borrowing or financing/mobilisation plan is formulated as part of the MTDS. The financing plan will set out guidelines for external and domestic borrowing including a domestic issuance program and/or auction calendar. The borrowing plan is produced by DMO in consultation with relevant stakeholders and submitted to the Public Debt Committee and/or Cabinet/Council of Ministers for approval. The borrowing plan and auction calendar will be published and updated during the fiscal year on a quarterly or monthly basis, and is the responsibility of the front office. Business Process/Workflow Preparation and Update of Borrowing Plan Environment/Context: The DMO will meet the government s financing requirements through external financing (multilateral, bilateral, commercial, and market) and domestic financing (Treasury bills, Treasury bonds, retail instruments and commercial borrowing from banks and/or Central Bank). The MTDS will set out an indicative financing strategy that will be subject to market conditions and project activities. The front office is responsible for monitoring market conditions and financing alternatives which are used to make decisions including the timing and structure of the domestic Treasury bill and bond tender programs. The DMO will submit the borrowing plan and auction calendar to the Public Debt Committee or Cabinet/ Council of Ministers for approval. The front office will make available to all market participants the borrowing plan and auction calendar. Ministry of Finance or Treasury Project Implementing Agency Provide medium-term primary balance and cashflow projections to the DMO. Provide project utilisation and expected schedule of loan disbursements, and pipeline for new project loans. Front Use medium-term primary balance Projections: - primary balance - monthly cashflows Forecast disbursements PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 14 OF 98

15 Head of Front Head of DMO Public Debt Committee or Cabinet/ Council of Ministers Middle and cashflow projections together with DMO and other financing transactions to determine government financing requirement. Prepare draft borrowing plan and auction calendar for the time horizon required (annual, quarterly and/or monthly) covering: External financing: - multilateral - bilateral - commercial - market Domestic financing: - Treasury bills - Treasury bonds - retail instruments - commercial banks and Central Bank Check and sign-off draft borrowing plan and auction calendar. Authorise borrowing plan and auction calendar. Review borrowing plan and auction calendar and approve. Arrange for borrowing plan and auction calendar to be translated (if Projections: - primary balance - monthly cashflows - disbursements Government financing requirement Draft borrowing plan: Auction calendar: - Treasury bill tenders - Treasury bond tenders Draft borrowing plan and auction calendar Signed-off borrowing plan and auction calendar Signed-off borrowing plan and auction calendar Authorised borrowing plan and auction calendar Borrowing plan and auction calendar Approved borrowing plan and auction calendar Approved borrowing PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 15 OF 98

16 necessary). plan and auction calendar Front Publish borrowing plan and auction calendar and post to DMO website (pdf format). Translated borrowing plan and auction calendar Approved/translated borrowing plan and auction calendar Published borrowing plan and auction calendar ACTIVITY 1.3 DEBT SERVICE FORECASTING General Description The DMO prepares a forecast of debt service costs for the fiscal year(s) including a schedule of debt service payments at the commencement of each fiscal year and updates periodically as required (i.e., supplementary budget, and semi-annually, quarterly or monthly updates). These forecasts will cover not only the current fiscal year but also the next two fiscal years if the government prepares a 3-year budget or medium term fiscal and expenditure framework. Forecasting of debt service payments on existing debt is normally undertaken by the back office, with economic and financial parameters provided by the Treasury or Ministry of Finance, new financing or borrowing provided by the front office, and project loan disbursements provided by project implementing units. The forecasts will be validated by the middle office that will also monitor debt service actual versus forecast throughout the fiscal year. The debt service forecasts will be signed off by the head of the DMO and submitted to the Treasury/Ministry of Finance. Business Process/Workflow Debt Service Forecast Preparation or Update Environment/Context: As part of the government s budget, the DMO is required to prepare debt service forecasts and a schedule of debt service payments at the start of each fiscal year. These will be based on the economic and fiscal parameters as set out in the budget and in accordance with the MTDS. The DMO will liaise closely with each project implementing office to obtain information on project utilisation, expected disbursements, and the pipeline for new project loans. An update will be prepared during the fiscal year for the supplementary budget and on request throughout the year by Treasury or Ministry of Finance PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 16 OF 98

17 Ministry of Finance or Treasury Project Implementing Agency Head of Back Front Provide medium-term primary balance and cashflow projections to the DMO. Provide medium-term economic and financial projections and/or scenarios to the DMO. Provide project utilisation and expected schedule of loan disbursements, and pipeline for new project loans. Input exchange rate & interest rate projections and forecast disbursements into the debt recording system. Prepare debt service forecasts for existing debt using the forecasting tools or reports in the debt recording system. Check and sign-off debt service forecasts for existing debt. Provide details of proposed new borrowing plan for the medium term (i.e., next 3 fiscal years): External financing: - multilateral - bilateral - commercial - market Domestic financing: - Treasury bills - Treasury bonds - retail instruments - commercial banks and Central Bank Projections: - primary balance - monthly cashflows - interest rates - exchange rates - inflation - GDP - baseline scenario - worst case scenario Forecast disbursements Exchange rate and interest rate projections Forecast disbursements Existing debt data Debt service forecasts for existing debt Debt service forecasts for existing debt Debt service forecasts for existing debt checked Govt financing requirement Draft borrowing plan with list of planned new borrowing PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 17 OF 98

18 Middle Head of Middle Prepare debt service forecasts for new borrowing and incorporate forecasts of existing debt: annual forecast by currency and instrument monthly forecast by currency and instrument sensitivity to interest rates and exchange rates, and worst case scenario Check and sign-off debt service forecasts. Debt service forecasts for existing debt Draft financing plan Fiscal projections Economic & financial projections scenarios Debt service forecasts Debt service forecasts Debt service forecasts checked Head of DMO Authorise debt service forecasts. Debt service forecasts Middle Submit debt service forecasts to Ministry of Finance or Treasury for inclusion in the annual budget. Debt service forecasts authorised Debt service forecasts authorised Debt service forecasts submitted to Ministry of Finance or Treasury ACTIVITY 2: EXTERNAL LOANS External debt is primarily made up of loans raised from multilateral and bilateral lending agencies and commercial loans such as bank loans, supplier s credits and officially supported export credits. Most of the loans are used for project financing according to the government s infrastructure and development program. The loans result from initial discussions with the line ministry responsible for the project. These loans are normally contracted with the government, although some loans may be contracted directly with the government agency or SOE. In the case of loans contracted with the government, the loan proceeds can be disbursed to the project or on lent to a government agency or SOE responsible for the project that will be contracted and documented in an onlending agreement. A project monitoring or implementation unit will be established to manage the project including administration of loan disbursements and repayments. The implementing PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 18 OF 98

19 partners, funding agencies, line ministries, government agencies and Ministry of Finance will participate in an extensive process of pre-consultations to agree the structure and specifications of the project, funding sources, grant and loan components, and project financing terms, and conditions that will apply to ensure effectiveness of the loan to be submitted to the government for consideration. ACTIVITY 2.1 EXTERNAL LOAN CONTRACTING General Description External loan negotiations are led by the Ministry of Finance in collaboration with the DMO and other agencies if necessary (line ministries, Ministry of Justice or Attorney- General, Central Bank, etc). The DMO obtains a mandate from the government (Public Debt Committee or Minister of Finance) to negotiate the loan. The mandate will specify a set range for the key terms of the loan. The Ministry of Finance/DMO negotiate the terms and conditions of the loan, a legal opinion on the loan agreement is obtained from the government s legal team and from legal counsel and the loan agreement is signed by the Minister of Finance. The front office of the DMO will prepare a term sheet with the loan details and forward this together with the signed loan agreement to the back office for recording and processing the loan. Business Process/Workflow External Loan Contracting Environment/Context: The government will approve an infrastructure and development program including a list of projects that the government plans over the 3-5 year planning period. This program will list new projects that have been formulated by implementing partners, funding agencies, line ministries, government agencies and Ministry of Finance through an extensive process of consultation to agree on project specifications and conditions. The DMO will participate in negotiations with the funding agency to agree the loan terms and conditions and where necessary prepare an onlending agreement for the government agency or SOE (this process is documented under Activity 10: Onlending below). Implementing Partners Funding Agencies Line Ministries, Government Agencies, Ministry of Finance Front Extensive pre-consultations to agree the structure and specifications of the project, funding sources, grant and loan components, project financing terms, and conditions to apply for effectiveness of the loan. Review the funding agency loan proposal submitted by Ministry of Finance, line ministry or other Pre-consultation Loan proposal Loan proposal PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 19 OF 98

20 Head of Front Head of DMO Public Debt Committee or Minister of Finance Head of Front & Front Desk r Middle Legal r or Representative Front government agency. Prepare draft loan mandate report with indicative loan terms and conditions to send to Public Debt Committee or Minister of Finance for approval. Sign-off draft loan mandate report. Authorise loan mandate report. Submit to Public Debt Committee or Minister of Finance for approval. Approve loan mandate report. Participate in negotiations with the funding agency along with Ministry of Finance, line ministry and other government agencies. Negotiate terms and conditions of the loan. Negotiate and finalise legal documentation throughout the negotiation process. Obtain legal opinion on the loan from legal counsel to ensure that covenants and other conditions are met. Prepare loan agent s warrant/power of attorney (if Minister of Finance cannot sign) Finalise loan terms and conditions and conclude the loan agreement. Draft loan mandate report Draft loan mandate report Signed-off draft loan mandate report Signed-off draft loan mandate report Authorised loan mandate report Loan mandate report Approved loan mandate report Approved loan mandate report Negotiated loan terms and conditions Negotiated loan terms and conditions Legal documentation Legal opinion Legal documentation PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 20 OF 98

21 Head of Front Head of DMO Minister of Finance or Loan Agent Front Head of Front Sign-off loan agreement. Authorise loan agreement. Submit to Minister of Finance for signing. Sign loan agreement or sign loan agent s warrant/ with the authority to sign on behalf of the Minister of Finance. Loan Agent to sign on behalf of the Minister of Finance Prepare draft term sheet and press statement. Approve term sheet and press statement. Send copy of press statement to Minister of Finance s office for release. Legal opinion Draft loan agreement Draft loan agreement Signed-off loan agreement Signed-off loan agreement Authorised loan agreement Loan agreement Signed loan agreement Signed loan agreement Draft term sheet Draft press statement Draft term sheet Draft press statement Term sheet PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 21 OF 98

22 Front Project Implementing Agency Send term sheet and copy of the loan agreement to back office for input to debt recording system and processing. Send copy of the loan agreement to the Accountant-General s, Central Bank and project implementing agency (PIA). Ensure that the conditions precedent and effectiveness of the loan are met. Press statement released Term sheet Signed loan agreement Signed loan agreement and term sheet sent to back office Signed loan agreement sent to Accountant- General s, Central Bank and PIA Signed loan agreement ACTIVITY 2.2 EXTERNAL LOAN MOBILISATION General Description Once the contracting of loans has been concluded, the DMO will need to process all debt transactions including disbursements. Because different types of loans from multilateral and bilateral lending agencies can be disbursed in various ways, the task of compiling disbursement data can be complex. For instance, in the case of project loans, disbursement can take the form of advances to the borrowing entity, direct payment by the lender to suppliers of goods and services, or on the reimbursement basis after the borrower has already paid the suppliers. The timing of the disbursement under these methods is different. Under the advances approach, it is the periodic payments by the lender to the borrowing government that constitutes disbursement; under the direct payment approach, it is the moment when the lender pays the supplier; and under the reimbursement approach, it is when reimbursements are made to the borrowing government. The DMO must keep track of these transactions and reconcile its records at regular intervals with information maintained by the project implementing agencies. Once a multilateral or bilateral loan agreement has been signed, the funds to be provided from the funding agency are set out in the disbursement profile during the disbursement period. This process of flow of funds from the funding agencies to the beneficiaries is known as disbursement. All funding agencies have different requirements to be fulfilled for arranging withdrawal of proceeds. Disbursement of project loans can take the form of: Advances: advances to the borrowing entity disbursements are to be recorded when the lender advances funds to the borrower. PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 22 OF 98

23 Direct Payment: direct payment by the lender to suppliers of goods and services disbursements are to be recorded when the lender pays the supplier. Reimbursement: on a reimbursement basis after the borrower has already paid the suppliers disbursements are to be recorded when the lender makes reimbursements to the borrower In some cases, the DMO is the authorised agency that is responsible for arranging disbursements from the funding agencies following the prescribed policies and procedures in the respective loan agreements. This will involve the DMO processing the Claim submitted by the Project Implementing Agency, checking it for compliance with the loan agreement, and submission of the claim to the relevant funding agency. Also, all disbursements from the funding agencies to the beneficiaries will be routed through the DMO. The DMO needs to determine the date and amount of all disbursements. The back office gathers this information through receipt of disbursement notices from the Project Implementing Agency and/or the funding agency, or by accessing creditor websites (World Bank, African Development Bank, Asian Development Bank etc), contacting creditors directly, and/or contacting line Ministries. The Desk r will gather the information on the actual transactions and enter the data into the debt recording system. Business Process/Workflow Loan Entry Environment/Context: Following the signing of the loan agreement, the DMO back office will be responsible for inputting the loan details into the debt recording system. The loan details will be set out in the loan agreement and the term sheet prepared by the front office. The loan will be entered by a desk officer and checked by a supervisor. Supervisor Obtain term sheet and loan agreement from front office. Input loan details into debt recording system following data entry procedure manual. Check loan data entered into debt recording system from term sheet and loan agreement. Term sheet Loan agreement Updated debt recording system Term sheet Loan agreement Updated debt recording system Check of updated debt recording system PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 23 OF 98

24 Disbursement Advances Environment/Context: The DMO will record disbursements when the lender advances funds to the borrowing entity. The back office gathers this information through receipt of disbursement notices from the Project Implementing Agency and/or the funding agency, or by accessing creditor websites (World Bank, African Development Bank, Asian Development Bank etc), contacting creditors directly, and/or contacting line Ministries. Supervisor Head of Back Accountant- General Receive loan disbursement advice from Project Implementing Agency and/or the funding agency, or by accessing creditor websites. Check disbursement for compliance with the loan agreement and funding agency policies and procedures. Input details of the disbursement into debt recording system. Prepare disbursement notice either generated from the debt recording system or manually setting out the receipt currency, amount, date and bank account. Check disbursement data entered into debt recording system against the loan disbursement advice. Check disbursement notice. Approve disbursement notice and send to the Accountant-General. Ensure disbursements have been paid to the borrowing entity. Input disbursement details to the government financial reporting Loan disbursement advice Updated debt recording system Disbursement notice Loan disbursement advice Disbursement notice Check of updated debt recording system Disbursement notice Disbursement notice Approved disbursement notice Disbursement notice Updated government PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 24 OF 98

25 system (IFMIS). financial reporting system Disbursement Direct Payments Environment/Context: The DMO will record disbursements when the lender pays the supplier of goods and services. The back office gathers this information through receipt of disbursement notices from the Project Implementing Agency and/or the funding agency, or by accessing creditor websites (World Bank, African Development Bank, Asian Development Bank etc), contacting creditors directly, and/or contacting line Ministries. Supervisor Head of Back Accountant- General Receive loan disbursement advice from Project Implementing Agency and/or the funding agency, or by accessing creditor websites. Check disbursement for compliance with the loan agreement and funding agency policies and procedures. Input details of the disbursement into debt recording system. Prepare disbursement notice either generated from the debt recording system or manually setting out the receipt currency, amount, date and bank account. Check disbursement data entered into debt recording system against the loan disbursement advice. Check disbursement notice. Approve disbursement notice and send to the Accountant-General. Ensure disbursements have been paid to the supplier of goods and services. Input disbursement details to the Loan disbursement advice Updated debt recording system Disbursement notice Loan disbursement advice Disbursement notice Check of updated debt recording system Disbursement notice Disbursement notice Approved disbursement notice Disbursement notice PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 25 OF 98

26 government financial reporting system (IFMIS). Updated government financial reporting system Disbursement Reimbursements Environment/Context: The DMO will record disbursements when the lender makes reimbursements to the borrower for payments already made to suppliers. The DMO may be required to prepare withdrawal or replenishment applications to send to the funding agency. The back office will check and process the application and gather the disbursement information through receipt of disbursement notices from the Project Implementing Agency and/or the funding agency, or by accessing creditor websites (World Bank, African Development Bank, Asian Development Bank etc), contacting creditors directly, and/or contacting line Ministries. Supervisor Head of Back Receive loan withdrawal or replenishment application from Project Implementing Agency. Check application for compliance with the loan agreement and funding agency policies and procedures. Prepare Withdrawal/Replenishment Application for submission to the relevant funding agency. Check Withdrawal/Replenishment Application to be submitted to the relevant funding agency. Approve Withdrawal/Replenishment Application to be submitted to the relevant funding agency. Send Withdrawal/Replenishment Application to the relevant funding Loan withdrawal or replenishment application Withdrawal/ Replenishment Application Withdrawal/ Replenishment Application Withdrawal/ Replenishment Application notice Withdrawal/ Replenishment Application Approved Withdrawal/ Replenishment Application Approved Withdrawal/ Replenishment PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 26 OF 98

27 Funding agency Supervisor Head of Back Accountant- General agency. Process Withdrawal/Replenishment Application. Make disbursement to the designated government bank account. Receive loan disbursement advice from Project Implementing Agency and/or the funding agency, or by accessing creditor websites. Check disbursement against Withdrawal/Replenishment Application and note any variance. Input details of the disbursement into debt recording system. Prepare disbursement notice either generated from the debt recording system or manually setting out the receipt currency, amount, date and bank account. Check disbursement data entered into debt recording system against the loan disbursement advice. Check disbursement notice. Approve disbursement notice and send to the Accountant-General. Ensure disbursements have been credited to the designated government bank account. Application Withdrawal/ Replenishment Application sent to funding agency Withdrawal/ Replenishment Application Disbursement Loan disbursement advice Updated debt recording system Disbursement notice Loan disbursement advice Disbursement notice Check of updated debt recording system Disbursement notice Disbursement notice Approved disbursement notice Disbursement notice PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 27 OF 98

28 Input disbursement details to the government financial reporting system (IFMIS). Updated government financial reporting system ACTIVITY 2.3 EXTERNAL LOAN SERVICING General Description Debt servicing activities cover the payment of principal, interest and expenses associated with all external loan obligations of the government. The payment process is initiated by back office which is responsible for the servicing of government debt obligations. Where an Integrated Financial Management Information System (IFMIS) is in place, this will be used by all government ministries and agencies, including the DMO, as the main tool for registering, monitoring and controlling their respective budget and financial execution transactions including all debt servicing activities. The Accountant-General is responsible for the execution of public debt payments, which are processed by the Central Bank through the relevant government bank accounts using the S.W.I.F.T. payment system. Payment advices are received from the funding agency and checked by the back office. If there is any discrepancy with debt information in the debt recording system, the desk officer will contact the funding agency or fiscal agent to reconcile the difference. A payment advice is prepared and either input/validated in IFMIS (if the DMO has direct access) or checked/authorised and sent to the Accountant- General for further processing. The Accountant-General will send the payment authority to the Central Bank in order that the payment can be made in the relevant currency and the local currency equivalent debited to the government account at the Central Bank. If the government purchases the foreign currency through a commercial bank, payment will be made in local currency to the commercial bank that will instructed to make payment in foreign currency to the designated bank account of the funding agency. Business Process/Workflow Payment Advice Environment/Context: The DMO will be responsible for receiving the payment notice from the funding agency or fiscal agent and checking this against the debt recording system. Payment advices will be prepared by the back office for submission to the Accountant-General who is responsible for preparing a payment order or authority to be issued to the Central Bank for making payment. Receive Payment Notice from the funding agency. Check Payment Notice against data in debt recording system. Prepare Payment Advice or enter Payment notice Payment advice PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 28 OF 98

29 Supervisor/ Head of Back Head of DMO payment into IFMIS. Check Payment Advice or payment set up in IFMIS. Approve Payment Advice or payment set up in IFMIS. Send Payment Advice to Accountant-General for further processing (IFMIS will alert Accountant-General of payment advice pending). Payment advice Payment advice Payment advice Approved payment advice Approved payment advice Approved payment advice sent to Accountant-General for further processing Payment Authority Accountant-General Environment/Context: The Accountant-General is responsible for preparing a payment authority or instruction to be issued to the Central Bank for making payment. Receive Payment Advice from DMO. Check Payment Advice against Budget approvals and internal controls. Prepare Payment Authority for the Central Bank. Payment advice Payment authority Supervisor Check Payment Authority. Payment authority Accountant- General Authorise Payment Authority. Check payment authority Payment authority Authorised payment authority PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 29 OF 98

30 Send Payment Authority to the Central Bank. Authorised payment authority Authorised payment authority sent to Central Bank Payment Processing Central Bank Environment/Context: The Central Bank is responsible for making payment to the funding agency or fiscal agent. There may be a standing order whereby the Central Bank can debit the designated government bank account and make payment in the settlement currency out of the foreign exchange reserves to the designated bank account. In some cases, there may be a foreign exchange transaction to cover the sale of local currency and purchase of the foreign currency. Supervisor Head of Back Receive Payment Authority from Accountant-General. Set up payment in S.W.I.F.T. Check payment in S.W.I.F.T. Authorise payment in S.W.I.F.T. Send confirmation to the DMO Back of payment details. Payment authority S.W.I.F.T. transfer set up S.W.I.F.T. transfer set up S.W.I.F.T. transfer checked S.W.I.F.T. transfer set up S.W.I.F.T. transfer authorised & processed S.W.I.F.T. transfer processed Confirmation to DMO ACTIVITY 3: DOMESTIC LOANS The government may borrow from domestic sources using loans or credit facilities arranged with a commercial bank and/or with the Central Bank under a ways and PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 30 OF 98

31 means advance and/or overdraft. The initial role of DMO will be to participate in negotiations normally led by the Ministry of Finance on the terms and conditions for each loan or credit facility and conclude the necessary legal documentation. The Central Bank ways and means advances and/or overdraft will be used by the Accountant-General to meet shortfalls in revenue or for short-term financing of expenditure commitments. Similar credit facilities may be arranged with a commercial bank. Loans or credit agreements contracted with commercial banks will be drawn and repaid according to the loan terms and conditions. Once the documentation is in place, the DMO will record all debt transactions and initiate payments of principal and interest required under the loan or credit agreement. The front office will prepare a terms sheet for each loan and credit facility. The back office will be responsible for input of the loans and credit facilities into the debt recording system and for settlement and payment processing. ACTIVITY 3.1 DOMESTIC LOAN CONTRACTING General Description Domestic loan and facility negotiations are led by the Ministry of Finance in collaboration with the DMO and other agencies if necessary (line ministries, Ministry of Justice or Attorney-General, Central Bank, etc). The DMO obtains a mandate from the government (Public Debt Committee or Minister of Finance) to negotiate the loan or facility. The mandate will specify a set range for the key terms of the loan. The Ministry of Finance/DMO negotiate the terms and conditions of the loan or facility, a legal opinion on the loan agreement is obtained from the government s legal team and from legal counsel and the loan agreement is signed by the Minister of Finance. The front office of the DMO will prepare a term sheet with the loan or facility details and forward this together with the signed loan agreement to the back office for recording and processing the loan or facility. Business Process/Workflow Domestic Loan Contracting Environment/Context: The government arranges a loan or credit facility with a commercial bank and/or from the Central Bank (ways and means advance and/or overdraft). The DMO will participate in negotiations with the commercial bank or Central Bank to agree the loan or credit facility terms and conditions. Commercial Bank or Central Bank, Ministry of Finance Front Pre-consultations to agree the terms and conditions of the loan or credit facility. Review the loan or credit facility proposal prepared by Ministry of Pre-consultation Loan or credit facility proposal Loan or credit facility PUBLIC DEBT MANAGEMENT BUSINESS PROCESSES/WORKFLOWS PAGE 31 OF 98