Improving Public Debt Management
In the OIC Member Countries
6
The government of Iran has mainly borrowed from domestic Islamic banks by taking loans
with fixed rates of return in the past. In 2015, Iran has started to expand its Islamic bond
market. There are various types of instruments such as murabaha, musharakah, ijarah, and
different types of sukuk. Sovereign sukuk, ijarah, and Sovereign Settlement Bills were issued
for the first time in 2016. Islamic Treasury Bills (ITBs) were also introduced describing zero
coupon bonds sold at a discount to their face values.
The government and the central bank of Sudan use various shortand longterm Islamic
finance instruments for debt and liquidity management. The central bank uses Central Bank
ijarah Certificates (shihab) for open market operations whose returns are fixed and distributed
monthly. The central bank also uses sukuk bonds for the management of liquidity. The
government employs two types of sukuk: shortterm Government Musharaka Certificates
(GMCs), which are mainly used for liquidity and cash management, and longterm Government
Investment Certificates (GIC). The nominal value of the instrument is distributed in profits
quarterly or biannually. Compared to the market for GMCs, which has been growing steadily
since 1999 because of the specific characteristics of these instruments such as high
profitability, low risk, shortterm maturity and high liquidity, the market for GICs has been
stagnating since its introduction in 2003.
Some case study countries with conventional finance systems have also introduced Islamic
finance instruments in public debt management. Countries such as Gambia, Togo and Oman
have already issued sukuk. Indonesia has established a rapidly growing market for public
sukuk and has also issued Global Sukuk denominated in foreign currency. Other countries such
as Egypt, Kazakhstan, Mozambique, Nigeria and Uganda have created legal prerequisites to use
Islamic finance instruments and/or are planning to issue sukuk in the next years.
5 Policy RecommendationsMost OIC countries have established legal and organizational public debt management
frameworks and have created Debt Management Offices or are in the process of doing so. In
some countries, the delineation of responsibilities for public debt management remains,
however, vague. Public debt management functions often are not fully centralized at the debt
management office but additional ministerial departments, the central bank and committees
pursue debt management functions. A large number of institutions involved in public debt
management hampers coordination and makes it difficult to evaluate the degree of
accountability of the individual institutions. As long as all debt management responsibilities
are not centralized at a debt management unit, adequate and systematic communication
between the various embedded institutions is important. All OIC member countries are
advised to set up Debt Management Offices if they have not done so, and to give these DMO
clearly defined authority to manage public debt.
About 38% of the OIC member countries have not yet developed a medium-term debt
management strategy (MTDS) following international standards. Among the OIC member
countries with formal public debt management strategies, 32% have not yet set numerical
strategic targets. All OIC countries are recommended to create MTDS including numerical
strategic targets. A clear commitment to the public debt management strategy is likely to be
helpful in attracting foreign investors and improving domestic debt markets. Countries that
have not yet published their debt management strategies are advised to do so to facilitate
communication with international investors. It is important to strengthen public disclosure of
legal and organizational structures of public debt management, operations and strategies in
the OIC member countries.