DEBT MANAGEMENT & Developments IN ALBANIA Mr. Marjus BOROKOÇI Head of Strategy & Risk Unit GENERAL PUBLIC DEBT MANAGEMENT DIRECTORATE PEMPAL-TCOP Plenary meeting: “Aspects of KPIs in the government liquid position” 15-17 th May, 2018

THE ROLE OF DEBT MANAGEMENT WHAT IS DEBT MANAGEMENT? Is the process of managing debt in order to achieve the Government’s financing needs, the appropriate tradeoff between cost and risks, and other secondary objectives such as the development of domestic market. HOW DEBT CAN BE MANAGED PROPERLY? Through establishing and implementing an appropriate strategy. WHAT IS A DEBT MANAGEMENT STRATEGY AND WHY IS IMPORTANT? DMS provides a framework within which the authorities can make informed choices on how the government’s financing requirement should be met, while taking due account of constraints and potential risks. - It strengthen the debt management functions; - It makes clear the path toward the objectives; - Increases transparency;

DMS LINKAGE WITH FISCAL POLICY Cost and risk of debt portfolio Fiscal Policy DMS Aggregate government spending and taxation Microeconomic impacts of tax and spending policies Structure of debt Cost and risks of debt portfolio Fiscal Risks Primary balance and financing need

DMS IMPLEMENTATION/LINKAGES MONETARY POLICY (Open Market Operations) Government borrowing affecting liquidity OMOs and other market interventions affecting liquidity DMS (Instrument Mix, Demand, Portfolio Targets) Guidance on market-based borrowing STRATEGY IMPLEMENTATION (Borrowing Plan) DMS OBJECTIVES (Secure Financing, Balance between Cost/Risks, Market Development) Feasibility and result of market-based borrowing Refinance existing securities and finance remaining gap Short-term borrowing to fill financing gap; cash cushion and prefunding for large refinancing CASH MANAGEMENT (TSA, Short-term borrowing)

IDENTIFICATION OF COST & RISKS OF EXISTING DEBT Quantification of cost (WAY, interest payments, interest payments/GDP, etc.) - In 2012 WAY of Domestic and External Debt -7,84% and 2,34% - In 2012 Interest Payments to GDP – 3,1% - In 2012 Interest Payments to Revenues – 12,6% - In 2012 Interest Payments in nominal terms – ALL 41,5 billion RISKS Identification of risks (Refinancing, interest, exchange, operational, etc.) - In 2012 the Domestic Government Debt of Albania was highly exposed toward refinancing and interest rate risk , , mostly due to the large share of short term debt instruments. Evaluation/quantification by using key indicators Other structural factors & risks - Demand driven mostly toward the lower end of the yield curve; - Limited diversification of the investor base (more than 65% of domestic debt was kept by banking the sector); - Primary market not well developed (to many issuing lines, fragmented demand, absence of benchmark securities); - Secondary market almost inexistent.

MTDS SCOPE & OBJECTIVE (2012-2018) DMS SCOPE Manage Budgetary Central Government Debt Increase transparency Clarify and materialize the objectives DMS CORE OVJECTIVES Securing Government Financing Needs Improve the balance Between Cost & Risk Develop the Domestic Market For Government Securities

MTDS TARGETS (2012-2018) TARGETS Reduce the risks of domestic debt portfolio Keep under control the share of foreign currency debt Develop the domestic market of governmental securities - Increase liquidity; - Increase efficiency; - Increase transparency;

MTDS IMPLEMENTATION (2012-2018) FOR RISK MANAGEMENT PURPOSES - New borrowing was realized mostly through long-term securities - Variable rate securities were issued in reduced amounts;

MTDS IMPLEMENTATION (2012-2018) FOR MARKET DEVELOPMENT PURPOSES - Activities that aimed to increase the liquidity; 1. Frequent reopening of the existing lines; 2. Introduction of new instruments and elimination of the existing ones that use to fragment the , , demand; 3. Adoption of the issuing policies with the market appetite. - Activities that aimed to increase the efficiency; 1. Changes in regulations and other activities were undertaken in order to incentivize and , , attract new investors. - Activities that aimed to increase transparency; 1. Regular publish of auctions results; 2. Regular publish of the quarterly issuing calendars; 3. Frequent meetings with the main investors.

POST IMPLEMENTATION RESULTS COST

POST IMPLEMENTATION RESULTS DEBT COMPOSITION

POST IMPLEMENTATION RESULTS RISK INDICATORS Key Domestic Debt Refinancing Risk Indicators

POST IMPLEMENTATION RESULTS RISK INDICATORS Domestic Debt Interest Rate Risk Indicators Exchange Rate Risk Indicators

POST IMPLEMENTATION RESULTS Developments in the Primary Market for Government Securities Demand in the Primary Market for Government Securities

THANK YOU!