Improving Public Debt Management
In the OIC Member Countries
5
the average time to refixing; and targets used for refinancing risk include a ceiling on maturing
debt within one year (in % of total outstanding debt) and the average time to maturity.
4 Public Debt Management Practices in Individual OIC Member CountriesThe low and lowermiddle income African countries Gambia, Mozambique, Togo, Uganda, as
well as Sudan have shares of external public debt in total public debt of about or over 50%.
These figures indicate an underdeveloped domestic debt market. The high share of debt
denominated in foreign currencies exposes these countries to exchange rate risk. Nigeria is an
exception among the African countries with external public debt amounting to only about 18%
of total public debt.
The external public debt of low and lowermiddle income countries with high shares of
external public debt is largely held by official creditors such as international organizations and
governments. Low and lowermiddle income countries often face difficulties in financing
themselves on international capital markets. Official creditors lend at preferential interest
rates and at longer maturities than private creditors. Consequently, the case study countries
with a high share of external public debt have lower interest rates and longer average
maturities in their government debt portfolio.
Other case study countries such as Egypt and Lebanon strongly rely on the domestic debt
market. High interest rates on government debt and preferences for safe lending reduce the
incentives of banks to provide credit to the private sector in these countries, leading to a
crowding-out of bank loans t the private sector. Banks tend to invest in shortterm
instruments to avoid asset and liability mismatches with shortterm bank deposits. Lebanon
has recently made progress in reducing the reliance on the domestic debt market especially
through a swap of domestic currency debt to Eurobonds.
Given the different debt levels and structures, debt management strategies vary among the
case study countries. Out of the 15 case study countries, eleven have developed formal debt
management strategies. Uganda, Egypt, Indonesia, Nigeria, Albania and Lebanon have
published numerical targets for risks in the public debt portfolio. Turkey has set numerical
targets but does not disclose these numbers. Gambia, Mozambique and Togo have set general
objectives but do not formulate specific targets. Saudi Arabia, Sudan, Kazakhstan and Oman do
not have or do not disclose targets.
Iran and Sudan all local banks operate under Islamic finance rules, while in SaudiArabia
onethird of all local banks can be considered as fully Islamic. Consequently, Islamic finance
instruments also play an important role for public debt management in these countries. DebttoGDP ratios in Iran and Saudi Arabia are very low, amounting to 17.1% and 5.8% in 2015.
Public debt in Saudi Arabia is completely domestic, while the share of domestic public debt in
Iran accounts for more than 90%. Declining oil revenues give rise to additional borrowing
needs and these countries plan to also tap international debt markets. To prepare
international bond issuances, legal and organizational structures for debt management are
being established at the moment. In contrast, Sudan has a relatively high public debt ratio
(68.9%) and about 90% of public debt is external.
The central bank of Saudi Arabia (SAMA) issues SAMA Bills and the government has issued
Government Development Bonds (GDBs). Although GDBs are not defined as Islamic bonds,
they are “zak h (compulsory alms) deductible” for domestic investors. The general rise in
popularity of corporate and quasisovereign sukuk and other Islamic finance instruments in
Saudi Arabia indicate that Islamic bonds will play also a bigger role in the future of the
country’s public debt management.