Annex XII to OIC/COMCEC-FC/33-17/REP
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bundled assets based on rent-to-own agreements) might be evaluated in order to
broaden the investor base and better management of risks. It should be also
noted that to attract international investors, it is crucial to increase the
transparency and information availability regarding public debt data,
procedures and (predictable) management strategies. It is generally
recommended that OIC countries with a yet developing domestic market avoid
a large dependence on either domestic or foreign borrowings, but strive for a
balanced exposure to both markets to mitigate global macroeconomic as well as
country-specific shocks.
Policy Advice 4: Lengthening the average maturity of the public debt
Rationale:
Governments have a tendency to issue short-term rather than long-term bonds.
Currently, the average maturity of new external debt commitments of private
creditors (excluding official creditors such as the IMF) in the OIC member
countries hovers at only 4-5 years, and has even shown a declining trend since
2013. Although interest rates on short-term obligations are usually lower than
long-term ones due to an additional maturity premium investors demand for a
long tie-up of their capital, a tradeoff arises as short-term debt is subject to a
higher refinancing risk. Moreover, the concentration of short-term bonds may
prevent the establishment or further development of a domestic debt market
which is supposed to satisfy both the investors’ preferences and the
government’s needs for medium- to long-term financing. Hence, OIC member
countries which are negatively affected by those factors are encouraged to
expand the maturity mix of their public debt portfolio. Especially governments
in the high- and median-income group with access to global debt markets may
consider increasing bond issuances with longer time horizons relative to short-
term bills if the domestic market conditions permit such operations, given the
current period of low interest rates in many developed economies. Overall, it is
advisable to exploit the benefits of all maturity categories, from short- over
medium to long-term, and achieve a sustainable maturity balance without an
exclusive dependence on either one category.
Policy Advice 5: Applying macroeconomic risk management methods
Rationale:
Macroeconomic developments pose a significant risk for public debt
management as the respective shocks are often difficult to mitigate in the short-
run. Thus, OIC member countries are encouraged to implement quantitative
information and analysis systems based on adequate frequency data which
provide early warning indications. A basic set of macroeconomic indicators