Improving Public Debt Management
In the OIC Member Countries
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implementation of public debt management, fiscal policy and monetary policy are
interdependent and involve tradeoffs (see Table 13). However, it is advised that public debt
management should be pursued independently (Togo 2007). Nevertheless, fiscal policy
makers, monetary policy makers and debt managers should coordinate their actions, e.g. by
establishing an internal public debt committee, and agree on common objectives such as
targets or ceilings on the deficit and on the stock of public debt (Allen et al. 2013).Table 1-3: Interdependencies of Public Debt Management, Fiscal Policy and Monetary Policy
Source: Togo (2007)Debt management transactions shall be formally separated from monetary policy operations if
the central bank conducts debt management transactions as an agent of the central
government. It is recommended that the central bank provides information to the government
and markets, clearly stating whether it performs transactions under the objective of monetary
policy or debt management on behalf of the government. A steady exchange of information
between the debt management entity and the central bank on current and future debt
transactions and on central government cash flows is advisable, especially if those transactions
are important for monetary policy. Moreover, a formal limitation concerning public funding
Public Debt Management
 Objective: raising the required amount of government funding
at the lowest possible cost, consistent with a prudent degree of
risk
 Target: debt structuring
 Instruments: operations on the capital markets
Fiscal Policy
 Objective: achieving the least
distorting budgetary policy
that stabilizes output,
improves the resource
allocation and manages
distributive effects
 Target: primary budget
balance
 Instruments: government
spending, taxes
Debt management actions are likely to influence the
government’s debt service costs, and can thus force
governments to reduce expenditures to decrease debt levels and
meet their debt obligations.
Fiscal policy measures (in particular spending and taxation) are
likely to influence the risk premium of government debt which
affects debt managers’ ability to issuing debt instruments and
build a sound debt portfolio.
Monetary Policy
 Objective: achieving price
stability while possibly
stabilizing or increasing
output
 Targets: inflation, interest
rates, monetary aggregates,
exchange rate
 Instruments: open market
operations, regulatory tools.
The debt structure, including maturity, floating interest rates or
currency denomination, are likely to restrain the central bank’s
policy options, e.g. in increasing interest rates or devaluating the
domestic currency, given that these measures may potentially
trigger a debt crisis.
Exchange rate and interest rate policies are likely to restrict the
issuance of foreign currency debt and floating rate debt. A loose
monetary policy may increase the inflation expectations of
investors, and hence require debt managers to issue shortterm
debt, or debt that is indexed to inflation rates.