Improving Public Debt Management
In the OIC Member Countries
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2.3 Lessons Learned and Relevance for OIC Member Countries In sum, the experience in OECD countries has revealed four issues crucial for the success of
public debt management. First, public debt management should be based on a sound longterm
strategy. Second, this strategy should be implemented by an institution capable of dealing with
public portfolio management. Third, public debt management has to be modernized. Finally,
suitable mechanisms to ensure accountability and successful delegation have to be designed.
While these recommendations reflect best practice in OECD countries, they may not be directly
transferable to emerging and developing countries. Since domestic debt markets are often
underdeveloped and domestic financial savings limited, governments in emerging and
developing countries have less domestic financing options. In particular, governments might
be unable to issue domestic currency debt with long maturities and fixed interest rates. This
implies that the preferred lowrisk category of debt is unavailable. As a consequence,
governments are constrained in the formulation of their strategic targets.
Public debt management might be even more important and beneficial in emerging and
developing countries than in developed countries. Large volatilities in macroeconomic
fundamentals, higher risks of contagion and inefficient tax systems characterized by low tax
income make those countries more prone to public financing problems. Moreover, major
externalities are attached to the government debt portfolio: given that public debt often
constitutes the most important liability for the country, instabilities in government finances
might endanger domestic financial stability as a whole. Government activity is important for
domestic debt market development and a major determinant of the financial conditions faced
by the private sector. With respect to the institutional arrangement, priority should be given to
consolidating public debt management functions in one single administrative unit. However,
there is no apparent need to locate the DMO strictly outside the Ministry of Finance. The
advantage of a SDMO to attract better trained staff thanks to higher salaries is likely to be
outweighed by the agency problems of a SDMO. Concerning the objectives, emerging and
developing countries are advised to focus on risk reduction and to lower costs only in the
second place. Reduced risks have positive spillovers to the whole economy and lower risk
premia may eventually translate into lower interest costs.
Countries are likely to learn from each other. Existing institutional settings and public debt
management documents might be taken as models by countries that take the first steps in
implementing formal public debt management. Moreover, countries are likely to cooperate.
Tasks such as the training of specialized staff, the development of capacities of the middle
office and the creation of risk quantification models might be centralized. Given their
commonalities, this opens the room for cooperation among the OIC member countries.
International institutions like the World Bank and the IMF provide consulting support. The
World Bank and the IMF developed jointly the MediumTerm Debt Management Strategy
(MTDS), which helps countries to design an appropriate strategy. The MTDS toolkit reflects
best practice in debt management (Cabral 2015, p. 4).
In 2013 the World Bank (Cabral 2015) conducted a survey that gathered information about
countries’ public debt management policies. Out of a sample of 117 participating countries
60% had a formal strategy in place. While countries in Europe, Central Asia and East Asian
show shares above the average, Latin America and the Caribbean is the region where a formal
strategy is less prevalent. For the subgroup of countries with strategies, their design, however,
differs significantly: 77% publish their strategy, 76% aim at strategic targets, 71% use
quantitative analysis and only a minority grounds the strategy on a legal framework. Although
having a strategy, countries in Southeast Asia and MENA are most reluctant in publishing it.