Effective Debt Management Improving Debt Management Practices Worldwide
Effective debt management is essential for economic development. As countries develop they confront increasing challenges in managing public financial risk whilst still achieving their ambitious poverty reduction and economic growth targets. Building strong debt management institutions, developing clearly defined procedures and creating the capacity for rigorous analysis can help countries to manage these risks effectively, minimising the cost of borrowing and ensuring a sustainable debt position into the future. Strong debt management can also encourage aid effectiveness. Accountability and governance can be increased by integrating public financial management and debt management under a comprehensive legal environment. About OPM Oxford Policy Management (OPM) is a private limited company providing economic, management and training consultancy services to public sector organisations and international development agencies. OPM has more than 20 years experience in sustained support for public sector organisations undergoing change. We have an international reputation for independence, rigour and informed analysis and the ability to provide practical assistance in solving clients problems. We provide developing country governments and donor agencies with solutions to some of the most complex and intractable international development problems. We build on a clear understanding of the relationships between political and institutional processes and policy reform. OPM has worked in over 90 countries worldwide, including experience in Africa, the Caribbean, South Asia, Latin America, Central Asia, Eastern Europe, the Former Soviet Union, East and South East Asia and the Middle East. 2
Our services OPM provides services that can help meet countries objectives by improving all aspects of their debt management performance. Our debt management team has extensive experience of providing technical assistance and training in debt and cash management to governments worldwide. Our areas of expertise include: Legal and institutional structure for debt management Debt recording and reporting Loan negotiation and evaluation Debt strategy and policy formulation Portfolio review and debt sustainability analysis Management of contingent liabilities, on-lending and sub-national debt Debt restructuring and debt relief Capital market development Diagnostic review of debt management operations Legal and institutional structure Establishing a clear legal framework and institutional structure is essential for effective debt management. Debt management activities, particularly in low income countries, are often spread across a number of agencies and institutions. Poor coordination among agencies reduces a government s ability to manage its debt and protect itself from adverse risks. OPM can advise on the optimal institutional structure for debt management operations, build professionalism and assist in drafting new debt and public financial management laws to improve governance and oversight. Sierra Leone: Strengthening debt management Under a WB/DFID-funded public financial management programme, OPM advised on the need to prepare a comprehensive legal framework covering central and local government borrowing, public enterprises borrowing that includes public private partnerships and reporting requirements for private sector. OPM also advised on the resolution of a phased conversion programme of accumulated government arrears with the central bank. OPM is currently in discussion with the government on a debt management strengthening programme that covers the development of a legal framework and all aspects of domestic debt management. Debt recording and reporting Accurate and timely reporting on debt is a prerequisite for any debt management operation. Improvements can be made to systems and procedures which significantly increase the efficiency and scope of debt recording. OPM consultants have experience working with all major debt recording systems, including CS-DRMS 2000+ and DMFAS 5.3, as well as in the design of procedures for reporting and dissemination of key debt statistics to senior policy makers and stakeholders. 3
Loan negotiation and evaluation As developing countries are confronted with an increasingly sophisticated range of loan products, negotiation and evaluation skills become more important. Improvements in this area can significantly reduce future debt service costs, as well as ensure that new loans are contracted within the context of the government s overall debt strategy. OPM can assist countries to evaluate a set of loans, establishing clear preferences and devising an effective strategy for negotiating the terms of those loans. Debt strategy and policy formulation Recent World Bank research has identified the lack of a comprehensive debt strategy as a fundamental challenge facing developing countries. The development and implementation of a debt strategy enables a country to address the conflicting objectives of funding ambitious development plans while maintaining a sustainable debt stock and minimising the cost of borrowing. OPM consultants have broad experience in the design and implementation of debt strategies tailored to meet a country s circumstances, from low-income countries to highly industrialised economies. Portfolio review and debt sustainability analysis A portfolio review examines the current debt stock and flows and identifies trends in their composition. It is a key foundation for any debt strategy. In addition, a debt sustainability analysis ensures that the Government s borrowing plans are consistent with the long term stability of the debt stock. This is of particular importance in planning investment programmes in low income countries. OPM can assist governments to implement and understand these analyses, with particular experience in the delivery of training on the World Bank/IMF Debt Sustainability Framework. Contingent liabilities, on-lending and sub-national debt Debt managers need to take account of all potential risks, including those that may not be apparent on the central government balance sheet. OPM can help countries in identifying and costing these risks, and in establishing institutional structures for their monitoring and management. Lesotho: Developing a public debt strategy OPM worked with the Public Debt Division (PDD) of the Ministry of Finance and Development Planning to develop a debt strategy for the Government of Lesotho. This was supported by a process to clarify institutional arrangements for debt management and identify the Ministry s capacity building requirements in debt management. Following OPM s assistance, PDD was able to significantly upgrade its analysis and management of public debt. Debt restructuring and debt relief Many countries are still feeling the effects of past borrowing decisions and adverse shocks. Nineteen countries are still to complete the HIPC process and restore sustainability to their debt stock. OPM consultants have advised on numerous Paris and London Club negotiations and can assist countries with this process to ensure that they get the best deal from creditor countries. OPM can also help those countries outside the HIPC process to restructure their debts to reduce debt service and smooth future payments. Capital market development Financial market development is inextricably linked to economic development. Strong capital markets have wide ranging benefits, including reduced rollover risk and lower debt service costs over the medium to long term. OPM can assist countries to strengthen and deepen their capital markets, including the establishment of secondary markets for government securities. Diagnostic review Finally, the establishment of the World Bank s Debt Management Performance Assessment Tool (DeMPA) has provided the basis for a uniform and comprehensive assessment of a country s debt management capacity. OPM consultants have participated in the design and field testing of DeMPA. OPM can assist international institutions in its application and also help client countries to interpret its results and develop capacity building plans for the future. 4
Our people Most of our consultants are full-time staff members employed directly by OPM. Clients know that when they hire OPM for a project, it will be managed and implemented by a project team that includes full-time OPM staff. This enables us to apply lessons from previous work and deliver a high quality product. We are also able to draw on an inner group of carefully selected individuals (OPM Associates) in whom we have confidence and who share our values and purpose. Sanga Sangarabalan Sanga Sangarabalan is an economist specialising in debt management and macroeconomic analysis and forecasting. Sanga has extensive technical experience in debt analysis (including contingent liabilities, debt restructuring, sustainability analysis and debt strategy), domestic debt management and organisational development of the debt management function. He has designed and delivered training courses in external debt management, debt restructuring, debt sustainability and strategy analysis, external resources programming and contingent liabilities management. Recently, Sanga has provided advice on strengthening the institutional arrangements for debt management in Dominica, covering the legal and regulatory framework for borrowing, agencies responsible for debt contracting, recording and repaying. He also advised on the need to 1) resolve arrears with the social security scheme, 2) reduce the debt service cost of international bonds and 3) observe prudent external borrowing. Sanga also undertook a similar assignment on behalf of the Ministry of Finance in Bangladesh, under the auspices of the DFID-funded Financial Management Reform Programme project. In Sierra Leone, he has identified the need to develop a comprehensive legal framework for borrowing, accounting and reporting for the government, public enterprises and private sector. Ed Humphrey Ed Humphrey has broad public financial management experience, combined with a strong interest in debt management. He recently spent over two years as adviser to the Debt Management Division of the Ministry of Finance in Guyana (under the Overseas Development Institute Fellowship Scheme). In this role he was responsible for establishing a permanent capacity for debt sustainability analysis, including elements on macroeconomic forecasting, institutional and governance reform. Alan Roe Alan Roe has 40 years professional experience in international macroeconomics, industrial and financial sector policy and economic statistics, including academic and consultancy work in the Former Soviet Union, Western Europe, Africa, Asia, and Latin America - much at ministerial level. Alan has considerable experience in administration in multilateral development organizations and in academic institutions at senior level. 5
Our network Robert Stone Robert Stone has over 30 years of financial sector experience. Robert has wide experience across the range of financial sector development issues, including financial market development and regulation, access to finance by households and MSMEs, restructuring of the banking system, bank privatisation, and international debt restructuring. His recent work has focused on the structure of markets within the financial sector and their impact on stability, growth and poverty reduction. He has developed methodologies for assessing and improving the reach and functioning of wholesale financial markets to ensure that financial intermediation links the effective mobilisation of international and domestic savings with the provision of appropriate capital for the enterprise sector. Ian Lang Ian has comprehensive experience across a broad range of public financial management issues. He has drafted public finance legislation and regulations for budgetary control, donor accounting and audit procedures. He has worked on the institutional development of public sector finance departments, the design and computerisation of accounting systems and the preparation of annual accounts for auditing and parliamentary scrutiny. OPM also have an extensive network of world-leading debt management specialists and public finance advisers. We are therefore able to draw on a wide range of skills and experience to carry out specialist tasks on specific consulting projects. Key individuals in this network include: Mike Williams Mike Williams is an experienced consultant in government debt and cash management, specialising in governance, risk management, policy and strategy formation, and institutional capacity and market building. Mike was responsible for the establishment of the UK Debt Management Office as its first Chief Executive in 1998. In this role, he clarified respective responsibilities and accountabilities, including with the central bank and financial regulator, developed the corporate governance and risk management framework, and evolved market interaction processes. He successfully expanded responsibilities, developing new policies across Government s financial balance sheet, widening the range of techniques and instruments handled and maintaining service to market throughout. Bangladesh: Financial Management Reform Programme OPM provided technical support to the DFIDfunded Financial Management Reform Programme (FMRP) in Bangladesh. OPM supported the overall strengthening of the various agencies involved in external, domestic debt and liabilities management in Bangladesh. This support programme involved: Undertaking a comprehensive debt sustainability analysis for Government; Support to the formulation of debt policy by the Debt Unit in the Ministry of Finance; Review of the accuracy, completeness and timeliness of debt monitoring systems and recommendations for their strengthening; The design and delivery of training in various aspects of debt management; and, Identification of further technical assistance to improve debt management. Per-Olof Jönsson Per-Olof Jönsson was Assistant Director and Chief Economist at the Swedish National Debt Office before establishing and managing its Risk Control Department. During this time Per-Olof was responsible for the establishment of a comprehensive risk policy, including the use of Value at Risk methodology and operational risk. He recently assisted in developing the new World Bank debt management diagnostic tool, DeMPA. 6
John Gardner John Gardner was Deputy Treasurer and Head of Portfolio Management of the New Zealand Debt Management Office. Since 2003, John has worked as a consultant specializing in debt and cash management issues. He has extensive experience in front office operations and market development issues, as well as a particular interest in the legal framework and institutional structure of debt management offices. Michel Vaugeois Michel Vaugeois is an experienced consultant in public debt management and financial analysis. Michel previously worked for the International Finance Division of the World Bank and has undertaken projects in over 30 countries, working on a wide range of debt issues. He has extensive experience of debt restructuring, including working directly with governments to provide support and analysis during negotiations for debt relief. Morten Kjaergaard Morten Kjaergaard is currently Assistant Head of Foreign Exchange and Money Markets at Danmarks Nationalbank, Denmark s debt management institution. He is available for short term inputs on assignments, such as the review of Cost-at-Risk modelling and debt strategy design. He has particular experience in developing and using cost-risk models for annual and medium term borrowing in mature as well as emerging markets. International: Debt management framework contract with SECO Between 2003 and 2005, OPM under a framework contract with State Secretariat of Economic Affairs (SECO) provided wide ranging advisory services in debt-related matters. Issues covered included: Suppliers arrears clearance programme in Burkina Faso Reviewing IMF/World Bank board papers and advising SECO on matters related to debt sustainability ratios for low income countries Review of HIPC and other debt relief initiatives Brief on issues related to the scaling up of aid resources Other debt management specialists OPM can also draw on an extensive network of individuals who are currently working in national debt offices worldwide and available for short-term inputs into assignments. In particular, OPM has close links with the Swedish National Debt Office, UK Debt Management Office and the National Bank of Denmark. 7
Why choose OPM? OPM offer a world-class team of debt management experts with a proven track record of consultancy around the world. OPM have links with the world s leading debt management institutions, including the ability to draw on their current staff for short term assignments. OPM take a holistic approach to debt management consultancy and advice by linking it with high quality Public Financial Management. OPM have extensive experience in undertaking major projects in debt management, public financial management and broader development and poverty reduction issues. OPM can offer international best practice experience in the design, implementation and evaluation of many areas of debt management reform, tailored to match local circumstances on the ground. OPM have practical experience in the application of all modern techniques, including the new debt management diagnostic tools, to assess underlying strengths and weaknesses. OPM have a long track record in the delivery of major developmental projects for all the major multilateral and bilateral funding agencies, including proven project management, administration and quality control processes. Contact details For further information on OPM s work in debt management, please contact: Ed Humphrey Consultant Public Sector Finance & Management Programme Oxford Policy Management 6 St Aldates Courtyard 38 St Aldates Oxford OX1 1BN United Kingdom Tel: +44 (0) 1865 207 300 Fax: +44 (0) 1865 250 580 ed.humphrey@opml.co.uk www.opml.co.uk