Improving Public Debt Management
In the OIC Member Countries
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Risk Description Exchange rate
risk Refers to the risk of increases in the value of debt arising from changes in
exchange rates. Debt denominated in or indexed to foreign currencies may add
volatility to debt servicing costs as measured in domestic currency due to
exchange rate movements.
Measures of exchange rate risk include the share of foreign currency to
domestic currency debt, the currency composition of foreign currency debt,
and the share of shortterm external debt to international reserves.
Liquidity risk Refers to the risk that the volume of liquid assets, especially cash, diminishesquickly as a result of unanticipated cashflow obligations and/or possible
difficulties in raising funds through shortterm borrowing.
Credit risk The risk of nonperformance by borrowers on loans or other financial assets,
or by a counterparty on financial contracts. This risk is particularly relevant in
cases where debt management includes the management of liquid assets. It
may also be relevant with regard to the acceptance of bids in auctions of
securities issued by the government and credit guarantees, and with respect to
derivative contracts entered into by the debt manager.
Settlement risk Refers to the risk that counterparty does not deliver a security as agreed in acontract, after the country (other counterparty) has already made the payment
according to the agreement.
Operational
risk Refers to a range of different types of risks, including but not limited to
transaction errors in the various stages of executing and recording
transactions; inadequacies or failures in internal controls, or in systems and
services; reputation risk; legal risk; security breaches; or natural disasters that
affect the debt manager’s ability to pursue activities required to meet debt
management objectives.
Sources: IMF (2014, pp. 12-13), World Bank (2015)
Debt reporting and evaluationTo ensure a transparent disclosure of the debt portfolio, it is recommended that a statistic
bulletin is published regularly, including information on domestic and external public debt
stocks and ratios (by creditor, residency classification, instruments, currency, interest rate
basis and original and residual maturity), debt flows (especially principal and interest
payments) and loan guarantees decomposed by type of loan and clarifying the amount that has
already been amortized.
(2) Coordination with Macroeconomic Policies
Public debt management interacts with fiscal and monetary policy. Fiscal policy involves the
usage of public spending, taxes and other sources of revenue which determine the primary
budget balance and influence economic outcomes. Objectives pursued by fiscal policy include
stabilizing the economy, improving resource allocation and providing public goods and
services and influencing the income distribution. Monetary policy primarily aims at achieving
price stability. By doing so, it inevitably affects both interest rates and exchange rates while
possibly trying to stabilize output. Instruments available to monetary policy include open
market operations and regulatory tools, e.g. reserve requirements. The objectives and the