Improving Public Debt Management
In the OIC Member Countries
19
2 Global Practices in Public Debt Management This chapter examines public debt developments, debt structures and performance indicators
for public debt management in a global context. Section 2.1 portrays how debt levels and
structures have evolved globally since 1980. Both, structure and performance of public debt,
might depend on the underlying institutional framework. Therefore, the advantages and
disadvantages of different legal and organizational structures of public debt management will
be discussed in Section 2.2 and lessons learned for OIC member countries will be described in
Section 2.3. A survey among international economic experts about debt management practices
in their home countries and their assessment of risks encountered in public debt management
complements this section by qualitative insights.
Public debt management can be assessed independently from the structure of public budgets
according to the criteria laid out above. However, the overall evaluation of the debt situation of
a country needs to take into consideration not only the overall debt levels and the way this
debt is managed, but also the underlying structure of revenues and expenditures as well as the
overall debt dynamics. If, for instance, debt is increased temporarily as a response to a global
economic crisis as revenues fall short of expectations, a transitory increase in public debt may
be preferable to decreasing expenditures to maintain current levels of public services whereas
a permanent increase in debt levels may not. In a similar vein, a temporary increase in debt
levels that finances productive public investment in education, physical infrastructure or the
like may be a reflection of productive public investment. Improved growth performance will
pay off debt and thus the increase in expenditures may be tolerable. An opposing scenario
would be deficit spending of the same amount to finance unproductive government
consumption, leading to a permanent upwardshift in debt levels. While the present report
takes into account debt dynamics in the recent past, a detailed analysis of the expenditure and
revenue structure of OIC member states is beyond the scope of the present analysis.
2.1 Descriptive Statistics and Performance Indicators This section describes how levels of sovereign debt have evolved over time, and presents data
on government budget balances. Moreover, it provides stylized facts regarding the structure of
sovereign debt, e.g. its maturity, currency denomination and creditor structure.
To examine whether developments depend on the level of income, which is commonly
regarded as a measure of a country’s stance of development, and to identify potential common
features, countries are grouped into low, middle, and highincome countries. This
classification is based on the World Bank method that divides countries into certain groups
based on their Gross National Income (GNI) per capita, using the World Bank Atlas method.
The specific thresholds may change over time. To reduce the number of groups, countries
classified as lower middleincome and upper middleincome by the World Bank are merged
into one group labeled middleincome countries (a list of the countries included in this study
may be found in the Appendix B). Besides the classification according to the level of income,
regional country groups are formed, as levels of sovereign debt and their evolution might
share common features within a region. Moreover, governments may easier justify their
financial policies if they follow neighboring countries.
2.1.1 Public Debt Dynamics Figure 21 shows the evolution of sovereign debt as a percentage of GDP for a sample of a
maximum of 193 countries over the period 19802015 including projections until 2021.
Scaling by GDP is motivated by the idea that this ratio expresses indebtedness relative to the