TERMS OF REFERENCE Domestic Debt Expert: To develop an E-Learning Course for Introduction to Domestic Debt Management 1. Background The Debt Management Section (DMS) which implements the Commonwealth Secretariat s capacity building programme in debt management in its member countries is an arm of the Trade & Debt Advisory Services Division (TDA) of the Secretariat. In accordance with the mandate from the Commonwealth Heads of Government and the principles of the Millennium Development Goals, the central feature of the Secretariat s debt management programme is to build capacity in member countries in recording, management and analysis of debt as well as to provide advisory support on debt strategies and institutional aspects. The programme has benefited a large number of developing countries both in low and middle income categories. At the core of the programme is the provision of Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) - a specialized debt management application. A key delivery of the debt programme is the provision of advisory services and training in debt management through the use of the CS-DRMS. In 2008, the Debt Management Section (DMS) initiated a project to conduct all of its CS-DRMS foundation training workshops on an e-learning portal to minimise cost and to improve on the efficiency and effectiveness of training delivery. The e-learning courses are followed by more advanced face-to-face workshops to enhance the learning and knowledge gained from the e- learning experience. As part of this initiative, DMS developed the first e-learning module on Managing External Debt through CS-DRMS and successfully conducted live courses in 2009, 2010 and 2011. As of today, this course has benefitted more than 100 learners from over 25 countries spanning across 4 regions 1. Since the launch of the Managing External Debt through CS-DRMS e-learning module in 2009, the Secretariat has released a new version of CS-DRMS and therefore needs to revise the e- learning module to take into account the changes in the software. In addition, the Secretariat will also develop a similar e-learning module for the management of domestic debt. 2. The CS-DRMS Application CS-DRMS (www.csdrms.org) 2 is an integrated tool for recording, monitoring and reporting public debt. The scope of CS-DRMS has significantly evolved over the years, undergoing series of enhancements to take into account (i) changes in debt management practices, (ii) global debt initiatives, (iii) changes in creditor practices and (iv) changes in information technology. 1 The four courses had an average completion rate of 86.2%. This rate is generally very high for an e-learning course. 2 Brochures of the software products developed by the Secretariat are available at www.csdrms.org
CS-DRMS provides a central repository for several categories of public and publicly guaranteed external and domestic debt covering a wide range of debt instruments. Its Loans Management Module allows recording of loan data, terms and conditions from multilateral, bilateral and commercial creditors. The Securities Management Module provides for capturing details of a wide range of securities covering treasury bills, bonds, promissory notes and commercial paper. The system integrates a powerful feature for forecasting disbursement and debt service flows. Debt managers can record actual disbursements and payments based on which the system can compute any arrears and penalties. CS-DRMS has a comprehensive Debt Reorganisation utility which allows the implementation of various types of debt restructuring facilities including stock and flow operations such as refinancing, write-off and debt conversion including the international debt relief through the Paris Club, HIPC and MDRI initiatives. The software comes with an extensive set of Standard Reports to generate figures either on aggregate or instrument-wise basis. Specialised tools are also available for generating debt data according to the reporting requirements of the IMF/World Bank s Medium Term Debt Strategy (MTDS), Quarterly External Debt Statistics (QEDS) and World Bank s Debtor Reporting System (DRS). CS-DRMS also comes with an Analytical Module designed to assist debt managers to conduct sensitivity analysis and portfolio reviews. 3. The Assignment The Secretariat intends to develop an e-learning course for managing domestic debt. This course shall comprise of two lessons with the first lesson being conceptual and the second being a practical demonstration of CS-DRMS. The consultant will write the course contents for the conceptual lesson. They are not required to develop content for the practical demonstration of CS-DRMS. As part of the assignment, the consultant will undertake the following activities: (i) develop the course contents based on the attached course blue print; (ii) develop the Test your understanding exercises, Topic assessments as well as the final lesson assessment; (iii) submit the course contents to the Secretariat for sign-off; (iv) collaborate with the course developers to devise an approach for communicating the course content in the format required for an e-learning course; (v) review the course SCRIPT produced by the developers; and (vi) review the e-learning module (early build review) before the course is made available for pilot testing.
4. Professional Expertise The consultant should possess: 1. A minimum of 10 years experience working on issues related to management of domestic sovereign debt; 2. Technical knowledge of bond mathematics, yield curve building and risk measures; 3. Knowledge of liability management operations and use of derivatives by sovereign borrowers; 4. Knowledge of regulation and taxation issues related to domestic debt; and 5. Extensive experience on conducting training on debt management concepts. Previous experience in developing course work in either an academic or practical context would be an advantage. 5. Level of Effort and Remuneration The assignment will be for a total of 55 person-days covering a period of 4 months (April July 2015). This will include a 5 day field visit to United Kingdom to work with the e-learning developers to collaborate on the course script. The level of effort anticipated for the assignment is shown in the table below: Activity Days Professional Fees/day Total 1. Develop course contents 45 400 18,000 2. Visit to developer s premises to collaborate on the course script 5 400 2,000 3. Review the course script produced by developer 5 400 2,000 Total 22,000 Refer Annex A for a the detailed outline of the course to be developed The total professional fees of for the assignment is 20,000 and will be paid based on the following break-down: 1. 20% on Contract Signing; 2. 70% on delivery of Course Contents; 3. 10% on review of course script; and The consultant will be required to visit to the developer s premises in the United Kingdom and assist in reviewing the course SCRIPT produced by the developers
Annex A Course Outline - Domestic Debt Management Concepts and the use of CS-DRMS Course Objectives The overall goal of Domestic Debt Online Course is to understand domestic debt concepts and enhance the skills of public officers to better management domestic debt. The course will introduce the concepts and terminology that serve as the foundation to understanding effective domestic debt management. Learners need to have this debt management knowledge base in order to work in a debt management office as a domestic debt manager. In addition, learners will need to understand these concepts in order to effectively use the CS-DRMS software. The delivery of this course may require exercises outside the e-learning portal for the calculations and computations of various debt management indicators Course Objectives and Outcomes On completion of the course, learners will be able to: demonstrate their understanding of the definition and purpose of domestic debt management; describe why domestic debt management is important for a country s effective and efficient debt management and describe the entire issuance process of securities; Understand and explain domestic debt management terms and concepts. Interpret and calculate various key domestic debt indicators. This course includes six (6) lessons that introduce the concepts and terminology that form the foundation for effective and efficient domestic debt management; Lesson 1: Introduction to Domestic Debt Management Lesson 2: Basic Bond Mathematics and Yield Curve Building Lesson 3: Risk Measures, Risk Management and Reporting Lesson 4: Debt Management Operations and Market development Lesson 5: Liability Management Operations and Derivatives Lesson 6: Regulations and Taxation related to domestic debt
Lesson 1: Introduction to Domestic Debt Management 1.1 Overview: This lesson explains i. the definition (including residency criteria) and purpose of domestic debt ii. how it has evolved over the past 15-20 years in developing and advanced economies iii. typical domestic debt instruments and domestic liabilities with numerical illustration of cash flows as well as pricing if relevant (short term instruments such as T-Bills, Central Bank Bills and notes, overdraft facility with Central Bank, deposits, payment arrears and long term instruments such as bonds- Zero coupon bonds, conventional bonds, Floating rate bonds, indexed linked bonds (inflation indexed, exchange rate linked, GDP indexed, recapitalisation bonds (capitalisation of payment arrears, overdraft with central banks) retail bonds, loans (amortising and variable rate, etc) iv. the features and measures of domestic debt instruments v. How domestic debt is issued and the issuing bodies ( Central, State, Provincial and district levels) vi. Comparison between external and domestic borrowing choices and national and subnational level borrowing ( direct and on-lent) 1.2 Learning Objectives On completion of this lesson, learners will be able to understand the following; Define domestic debt and its purposes Understand the evolution of domestic debt in developing and advanced countries Understand and able to calculate the cash flows of various domestic debt instruments prudent and effective choices in borrowing- external and domestic, national versus sub-national Understand the various issuance methods such as different types of auctions, syndication and placement. 1.3 Content A report on the historical development of domestic debt in Definition of domestic debt and examples of cash flows The purpose of domestic debt and simple illustrations Explanations of various methods of issuance and its suitability/inappropriateness Fiscal Federalism, National-Subnational relationships and borrowing ( direct and onlent) 1.4 Learning Activities Reading Simple illustrations and exercises Discussions and creating links with other related institutions and colleagues with experience Looking up related references
1.5 Assessment/Performance Outcomes Exercises tutorials Presentation of brief reports 1.6 Learning time Average learning time of 2 3 hours Lesson 2: Basic Bond Mathematics and Yield Curve Building 2.1 Overview This lesson contains a high degree of definitions, calculations and usefulness of government securities. It begins with simple functions and gradually increases to an intermediate stage of analysis/calculations. Since it is based largely on Excel based exercises the lesson is mainly taught through an `Excel Workbook. 2.2 Objectives Understand basic bond mathematics and use of mathematical application Understand yield curve Develop analytical skills and apply them to their work environment Understand the data requirements ( including how to deal with missing data, proxy data) to carry out the calculations 2.3 Content Explanations of price and yield relationship, YTM, Zero and Par yield with mathematical derivation Exercises using Excel `fx functions Explanation on the theory of yield curves (liquidity preference, expectation, market segmentation, preferred habitats, etc.) Building various yield curves- References to yield curve building given yield points 2.4 Learning Activities Understanding theoretical aspects Calculations using Excel Understanding data flows and requirements
2.5 Assessment/Performance outcomes Completion of Work Book exercises Essay on yield curves Simple test exercises 2.6 Learning Time Average learning time of 3 4 hrs Lesson 3: Risk Measures Risk Management and Reporting 3.1 Overview: This lesson deals with measuring various risks, managing such risks and reporting of those risks that are prevalent in domestic debt. Market risks, Refinancing risks, liquidity risk and operational risks are handled in this lesson. Also included is evaluating market volatility of price movements. 3.2 Objectives: Understand and develop skills to measure interest rate risk and refinancing risk, Able to measure and monitor settlement and operational risk and update and introduce controls Able to measure and monitor liquidity risk Able to assess/monitor credit risk Prepare reporting systems 3.3 Content: Concept and measurement of Interest rate risk, refinancing Risk Liquidity risk measurements- for government cash needs, primary and secondary market indicators Definition of operational risks related to issuing and managing government securities Preparation of risk register, level of probability/ impact matrix and monitoring high operational risk activities Monthly, quarterly debt and risk reporting formats Understanding and calculations of duration, modified duration and price volatility measurements Understanding data requirements
3.4 Learning activities: Completing assignments containing largely exercises simple and Excel based Group discussions and leaning from colleagues working in debt offices Discussion on debt reporting formats and staff responsibilities 3.5 Assessment/Performance evaluating exercises - calculations assessment of answers provided by learners on concepts and theory 3.6 Learning time: Average learning time of 3 4 hours Lesson 4: Debt Management Operations and Market development 4.1 Overview: This lesson deals with conducting various domestic debt issuance methods such as auctions recording, registration and settlements (this section should be linked to Module 2). On the Market development side, both the primary and secondary market development covering money and bond market will be included 4.2 Objectives: Understand various primary issuance method (auctions, syndications, tap sale, fixed price subscription, etc) and process (preparing auction calendars, reopening, benchmarking, underwriting, when issued market) Understand the various players in domestic bond market and their investment needs( Primary Dealers, Banks, Pension funds, provident funds, insurance companies, mutual funds, foreign investors, retail) Understanding secondary market (exchange traded, OTC) and measures of liquidity Understanding market infrastructure (depository, clearing and settlement including various types of DvP) Understand the factors that can improve and promote secondary market development 4.3 Content: Issuance methods and process Players in domestic market Secondary market and market infrastructure Factors contributing to primary and secondary market development
4.4 Learning activities: Training on various issuance methods and relevant procedures its suitability to a particular country situation Training on definitions of the various functions and activities for debt management operations and market development Learning through various examples of operations of other countries On market development, existing substantive reports on how countries have significantly progressed on market development will be referred /discussed/debated. 4.5 Assessment/Performance Understanding the various operations through simple test Understanding factors that contribute to market development via presentation of a well re-searched study. 4.6 Learning time: Average learning time of 3 4 hours Lesson 5: Liability Management Operations and Derivatives 5.1 Overview: This lesson deals with a limited number of liability management operations and derivativesbasically buybacks, exchanges and interest rate swaps. 5.2 Objectives: Understand the various liability management operations (buybacks, switches, exchanges) Understanding basic derivatives (interest rate Swaps and options (call, put, collar) How and when to apply them in a particular country situation to strengthen borrowing strategy formulation and implementation 5.3 Content: Debt buyback methods and applications Debt Switches and applications Interest rate swaps and applications Interest rate options (call, put, collar)
5.4 Learning activities: Definitions of the various functions and activities for debt management operations and market development Reverse auctions, coupon purchase, switching, interest rate swap operations etc. These can be combined with either new issuance or re-opening environment Learning through various examples 5.5 Assessment/Performance Understanding the various operations through exercises and simple assessment test 5.6 Learning time: Average learning time of 3 4 hours Lesson 6: Regulations and Taxation related to domestic debt 6.1 Overview: This lesson deals with various regulations, guidelines and taxation issues related to domestic debt. It is important for debt managers to be competent to introduce a proper balance of regulation (as opposed to over regulate or too liberalised environment) and taxation (over taxed or under equitable) so that the market for domestic debt develops with proper safeguard of competition, transparency accountability. 6.2 Objectives: To understand the role of regulations, guidelines and taxation applied to investors, dealers etc. To be able to introduce a well balanced approach to regulations and taxation with resulting in excessive regulation or inequitable tax regime that damages the development of a competitive and transparent market for government securities. 6.3 Content: Regulation on primary dealers and investors incentives, privileges sanctions Primary legislation of Government- mandate, strategy for borrowing, implementation and reporting Regulations on market conduct, supervision and compliance requirements Taxation of government securities- withholding tax, capital gains tax, taxed at cash or accrual, non-resident tax, inflation adjusted tax, secular versus integrated tax
6.4 Learning activities: Substantive in depth reading of introducing regulations and taxation Merits and disadvantages of each provided through reading material with country comparisons, Discussion with colleagues in other countries 6.5 Assessment/Performance Assessment via question papers and answers provided Submitted essays/tutorials 6.6 Learning time: Average learning time of 2 3 hours Final Assessment Learners must pass a comprehensive test in order to successfully complete Module 1. This test will be included in their course materials and will consist of objective questions similar to those they will have completed in the Check Your Understanding exercises they completed during each lesson (true-false questions, completion items, matching items, and multiplechoice questions). Learners who pass (85% - 100% correct) will receive a certificate of completion directly on their computer and they can print these if they wish. Learners who do not achieve a pass will be directed back to the appropriate lessons for review (based on the mistakes they made on the test) and will be encouraged to retake the test until they succeed. Learning time: 2 3 hours (each time)