The Government successfully borrows in the domestic market: how to optimize this process and to reduce Debt Management Costs Erika Latyšovič, Principal Auditor National Audit Office of Lithuania 2011-06-10 INTOSAI PDWG Meeting

Structure of the debt on behalf of the State by measures of borrowing, in per cent

Audit Objectives and Assessment Criteria Audit objective – to assess the efficiency of the management of GS issued in domestic market Assessment criteria: Compliance with legislation regulating the issuance of GS in domestic market Comparison of the management measures for GS issued in domestic market applied in Lithuania with provisions of PDM guidelines defined by IMF, the WB, INTOSAI PDWG and the best foreign practice

Audit Scope and Methodology Audited period: 2006-2009; in some cases data of 2010 was used for comparison Audit methods: Analysis of content and application, and data analysis Meetings, interviews, surveys – MoF, Stock Exchange, Central and Commercial banks Data verification, checking, reviewing, comparison

Public Debt Management Strategy does not stipulate what share will be borrowed in the domestic market does not provide for an aim to develop and maintain the efficient and liquid domestic market Recommendation for the Government: Strategy should foresee the following as one of its main objectives: to develop and maintain the efficient and liquid GS domestic market, as well as to set detailed measures for implementation of this objective

Planning of borrowing in the domestic market MoF announces insufficient information about the planned borrowing in the domestic market. Planning process of the borrowing is to be improved Preliminary annual calendars for issuing of GS in the domestic market are not approved and not made publicly available MoF didn’t often follow the self-established borrowing programmes and calendars

Issuance of GS in the domestic market Debt management operations in the domestic market are not sufficiently transparent, regular and predictable The MoF systematically cancelled previously announced auctions in 3rd-4th quarter of 2006-2009 The issuance of GS and terms to maturity were not always closely connected to the need for money on respective days The MoF does not analyze / use auction evaluation indicators, which show the interest of investors in securities with various maturities

Recommendations for Ministry of Finance To establish preliminary annual predictable and regular calendars for issuance of TB and bonds, and make them publicly available To take into consideration the dynamics of fluctuation of the State Budget revenue and expenditure when planning the annual borrowing To analyze / use auction evaluation indicators when making decisions on maturity of GS

Information about the Issuance of GS through Auctions Insufficient information is announced in quarterly auction calendars The MoF does not announce the amount of the GS issue The MoF follows the best practice and reopens issues to ensure the liquidity of GS, however it does not disclose data about it

Recommendations for Ministry of Finance To announce more detail information in quarterly calendars for issuance of GS To indicate the amount of GS issue in the announcement to issue GS To make publicly available auction evaluation indicators and their analysis To announce data on the reopened issues during the year

Auction Participants Lack of regulation about non-competitive bids No minimum / maximum amount is set for one auction participant / investor to purchase during one auction Lack of understandable information to potential investors The MoF does not own information, nor does it communicate with final investors

Recommendations for Ministry of Finance To set in requirements and limitations for auction participants on non-competitive bids as well as minimum and maximum limit per one auction participant To make publicly available understandable information about the organization of auctions To organize regular meetings with auction participants, as well as potential and existing investors

Thank you for attention