Governance and Accountability

Transcription

1 Governance and Accountability DeMPA Training World Bank CEMLA Mexico City, Mexico February 28 March 4, 2011 Why place so much focus on governance and accountability? Historically, government debt management was limited to borrowing, recording, and debt servicing There was one policy goal Ensure that government financing needs were met This narrow objective had consequences Multiple borrowing units (front offices) Several debt databases No systematic analysis of cost/risk in the debt portfolio (i.e., no middle office function) Narrow scope of the legal framework, typically limited to borrowing authorization 2 1

2 In the 1990s, a new perspective emerged The most pressing issue confronting governments is the need to reform the institutional arrangementsgoverning governing debt policy, so that the technical expertise and experience required to manage the risks of external debt competently and transparently can be applied. Professionalism and accountability can best be achieved when debt management is assigned to an agency that is separate and autonomous from the political process. Cassard and Folkerts Landau, (1997), Sovereign Debt: Managing the Risks, Finance and Development, IMF 3 and a new definition Sovereign debt management is the process of establishing and executing a strategy for managing the government s debt in order to raise the required amount of funding, achieve its risk and cost objectives, and meet any other sovereign debt management goals the government may have set, such as developing and maintaining an efficient market for government securities. World Bank and IMF (2001), Guidelines for Public Debt Management 4 2

3 Consequently, new issues moved to the center Policy goals What are the long term debt management objectives/goals? Strategy design How best to achieve those goals? De politicization and decision making What is to be decided at the political level, and what is best left to professional debt managers? Organizational arrangements Is a debt management office required, and how to set it up? 5 Consequently, new issues moved to the center Evaluation How to evaluate the performance of debt management? Audit How to have a performance audit of debt management? Regulatory changes What legal framework is needed in this new environment? 6 3

4 Policy goals Common primary debt management objectives Ensure that the government s financing needs aremet Minimize borrowing costs over the medium to long term, consistent with a prudent degree of risk Common subsidiary objective Promote development of the domestic debt market 7 Strategy design A medium term debt management strategy guides borrowing decisions What are the preferred cost/risk trade offs? Will the government borrow short term to reduce cost, or longterm to reduce interest rate and rollover risks? Will the government borrow in foreign currencies to reduce cost, or in local currency to reduce the exchange rate exposure? How to promote development of the domestic debt market through the government s debt management transactions? 8 4

5 De politicization and decision making Some decisions are commonly taken at the political level Policy goals Medium term strategy Supervision and evaluation Other decisions are taken by the debt manager Preparation of the debt management strategy proposal Annual borrowing plans based on the strategy Execution of those plans There is a parallel with monetary policy Price stability (policy goal) inflation targeting (strategy) money supply management (execution) 9 Organizational arrangements Increasing demands for a debt management office Drivestrategy development Determine annual borrowing plans Create one comprehensive debt database Assume overall responsibility for debt management activities Build up a domestic yield curve Report on the entire government debt Debt management is moved out of the central bank 10 5

6 Evaluation and audit Before the focus was limited Reports limited to debt statistics Audits limited to the financial accounts Now the analysis is richer, considering debt management as a process Evaluation reports submitted to the legislature, covering all debt managementactivities activities, assessmentofoutcomes outcomes againstthethe stated policy goals, and compliance with the debt management strategy Increasingly a focus on performance audits 11 Regulatory changes Before it was common to have detailed regulations on individual transactions Borrowing restricted to certain markets and through certain instruments Legislature s approval required for all external borrowing Now legislation is policy based Focus on policy goals, strategy development, andaccountabilityaccountability 12 6

7 Pulling it together Legislature Minister/Cabinet Audit Central Bank Principal Debt Management Entity 13 Legal framework (DPI 1) One dimension to assess Existence, coverage, andcontent of the legal framework 14 7

8 Legal framework Clear authorization to borrow and undertake debt related transactions and issue loan guarantees Borrowing purposes specified Plus Clear debt management objectives in primary legislation Requirement for annual reporting to the legislature and for external audit Plus Requirement in primary legislation to develop a debt management strategy Annual reporting includes evaluation of outcomes against stated objectives 15 Managerial structure (DPI 2) Two dimensions to assess Managerialstructure for central government borrowings and debt related transactions Managerial structure for the preparation and issuance of central government loan guarantees 16 8

9 Managerial structure (dimension 1) Borrowing and debt related transactions are undertaken by a principal debt management entity or by several entities that coordinate closely Plus Borrowings and debt related transactions are steered by a formalized debt management strategy No undue political influence Plus Borrowings and debt related transactions are undertaken by the principal debt management entity 17 Managerial structure (dimension 2) Loan guarantees prepared p and issued by one or more entities that coordinate closely and with the principal debt management entity (if one exists) Plus Loan guarantees are prepared and issued by a principal guarantee entity, which coordinates with the principal debt management entity (if one exists) Plus Loan guarantees are prepared and issued by the principal debt management entity 18 9

10 Debt management strategy (DPI 3) Two dimensions to assess Quality of the debt management strategy document Decision making process, updating, and publication of the debt management strategy 19 Debt management strategy (dimension 1) Covers the medium term and at least 90% of existing and projected debt, and is based on debt management objectives Contains guidelines for the preferred direction of risks Plus Has realistic target levels for risks Plus Target levels are based on cost/risk analysis 20 10

11 Debt management strategy (dimension 2) Strategy proposal prepared by the principal debt management entity or jointly by entities Central bank s views are obtained Approved by the Minister/Cabinet and made public Plus If proposal is not accepted, the rationale is presented in the final document Updated at least every third year Plus Updated annually 21 Evaluation of debt management operations (DPI 4) One dimension to assess Levelof disclosureofof government debt management activities, central government debt, evaluation of outcomes against stated objectives, and compliance with the debt management strategy 22 11

12 Evaluation of debt management operations Legislature receives an annual report on debt management activities and outstanding central government debt Plus Annual report contains an evaluation of how activities have complied with the debt management strategy Plus Evaluation of outcomes against stated objectives, and the debt management strategy and the rationale behind it Report is made public 23 Audit (DPI 5) Two dimensions to assess Frequency of internalandexternaland external auditof central government debt management activities, policies, and operations, as well as publication of external audit reports Degree of commitment to address the outcomes from internal and external audits 24 12

13 Audit (dimension 1) Externalaudit audit of debt management activities, policies, and operations within the past 5 years Plus Frequent external audits (every 3 5 years) and annual internal audits Plus External audits conducted every 2 3 years and external audit reports are made public within 6 months 25 Audit (dimension 2) Commitment to address audit outcomes Plus Strong commitment Plus Immediate commitment 26 13

14 Mapping to PEFA PEFA indicator on recording and management of cash balances, debt, and guarantees (PI 17) Dimension 3: systems for contracting loans and issuing guarantees PEFA emphasizes having a single entity responsible for approvals and the use of transparent criteria and targets. DeMPA drills down in greater detail on the legal framework, managerial structure, strategy development, and evaluation 27 Mapping to PEFA PEFA indicator on effectiveness of internal audit (PI 21) Dimension 1: coverage and quality of the internal audit function Dimension 2: frequency and distribution of reports Dimension 3: extent of management response to audit findings Both PEFA and DeMPA emphasize the frequency of internal audit and the degree of commitment to respond to audit findings Both PEFA and DeMPA look beyond just financial audit 28 14

15 Mapping to PEFA PEFA indicator on the scope, nature, and follow up of external audit (PI 26) Dimension 1: scope/nature of the audit performed Dimension 2: timeliness of submission of audit reports Dimension 3: evidence of follow up on audit recommendations Both PEFA and DeMPA emphasize the frequency of external audit, the timeliness of submission and response, and the effectiveness and timeliness of follow up PEFA expects a high quality audit to include aspects of a performance audit, whereas performance audit is key to DeMPA 29 Thank you! PRMED World Bank Economic Policy And Debt Department 30 15