Improving Public Debt Management

In the OIC Member Countries

Executive Summary

1 Definition and Performance Indicators of Public Debt Management

Public debt management

is intended to design the government’s debt portfolio in a targeted

and efficient way. Public debt management strategies aim at raising the required amount of

funding at the lowest possible costs, consistent with a prudent degree of risk. Additional

objectives include developing and maintaining an efficient market for government securities.

Performance indicators

for public debt management are grouped into the categories (1)

governance and strategy development (e.g. the legal or managerial framework); (2)

coordination with macroeconomic policies (e.g. coordination with fiscal or monetary policies);

(3) borrowing and related financial activities (e.g. domestic or external borrowing); (4) cash

flow forecasting and cash balance management (e.g. effectiveness of cash flow forecasts); and

(5) debt recording and operational risk management (e.g. debt administration and security).

public debt management strategy

helps (1) making prudent borrowing decisions based on

an analysis of cost and risks; (2) facilitating intragovernmental and creditoraddressed

communication and coordination to reduce uncertainty; (3) giving debt managers a clear

mandate, thereby ensuring good governance and accountability; and (4) fostering the

development of a domestic debt market by making the government’s debt goals transparent to

market participants.

Risks for the government’s debt portfolio arise from the structure of outstanding debt,

including but not limited to

refinancing risk

interest rate risk

and

exchange rate risk

2 Global Practices in Public Debt Management

In a global sample over the period 19802015, the

average public debt level

assumed values

between 40% and 80% of GDP with a tendency to increase. In most years, average public debt

relative to GDP in the group of highincome countries is larger than in middleincome and lowincome countries.

The

average public budget deficit

was 7.2% of GDP during the period 19801995. Since 1995

budget deficits have decreased to 2.0% on average (1.4% of GDP for the period 19962006).

The global financial crisis, however, marks a structural break and pushed balances deeper into

deficit, where they will remain in coming years according to projections. Compared to the

1980s and 1990s, public budget balances of lowincome countries have improved remarkably.

The shorter the

maturity of debt

, the higher the amount of debt to be rolledover in a given

year and the higher the

refinancing risk

. The average share of shortterm in total public debt

in a global sample decreased from 24% in 1995 to 11% in 2015. While private creditors extend

their credit for an average period of approximately five years, official creditors sign contracts

with maturities exceeding 20 years on average.

Debt denoted in

foreign currency

is subject to

exchange rate risk

because a devaluation of

the domestic currency increases the value of foreign currency denominated debt expressed in

domestic currency. Public debt denominated in foreign currency has increased slightly over

the past 20 years. It makes up about 36% of total public debt across all income groups; the

share is highest in lowincome countries and lowest in highincome countries.

Foreigndenominated public debt is mostly contracted in U.S. Dollars, whose share has been

rising over time and equaled 59% in 2014. Other dominant currencies are the Euro (13%) and

Special Drawing Rights (SDRs) with the IMF (6%). While highincome countries mostly rely on