Commonality of Interests of Fiscal and Debt Managers Presentation at Second Forum of Caribbean Debt Managers, & CARADEM Executive Committee Antigua, Guatemala 10 July,2012 Michel Marion Macro-Fiscal consultant

Introduction This presentation: Looks at debt management from a macro-fiscal perspective Also looks at common interests between Debt Office and Macro-Fiscal Units Advocates closely coordinated effort Recommends formal inter-agency mechanisms

Structure of Presentation First quick review of key mandates of Debt Offices and Macro-Fiscal Units Then focus on areas of shared interest, namely contribution of effective Debt Management to achievement of macro-fiscal objectives A few words on risk areas both institutions concerned with & eager to “manage” Conclusion: effective coordination & close working relationships are key Review specific activities for inter-agency technical working group to coordinate A few ideas on institutional arrangements All this to better serve Ministers and the public

Areas of Focus of Debt Managers Public debt managers are focused on managing the Government’s debt portfolio (including new financing) in a way that portfolio appropriately balanced in an effort to ensure costs and risks remain within acceptable range

Debt Managers: Tools and Levers 3 classes of Debt Office functions Work with structure of debt, interest rates and currencies: Maturity: short versus long Issue currency: local versus external currencies Choice of markets to tap MTDS Proposes choices: Across maturity structure Domestic versus external Concessional versus market Fixed versus floating Decide on Timing of issue Manage and keep good records

Areas of Focus for Fiscal Managers Work with the government’s fiscal levers to the achievement of national objectives: to influence aggregate demand, potential output, resource allocation, and social, economic, environmental, security… objectives Fiscal Levers - levels and structure: Revenues Expenditures Financing & Debt Debt guarantees Will not go systematically into tools and levers to keep focus on debt management

Key Macro-Fiscal Considerations Sustainability is key (ongoing, no need to resort to special mechanisms to service debt) Avoid crowding out & monetary pressure and XR pressure Smooth amortization and interest payment schedules (liquidity) Low, predictable interest costs: to optimize resources devoted to programs & clients Best possible credit rating and reputation in credit markets (guaranteed market access) Run government as an ongoing concern

Sound Debt Management from Macro-Fiscal Perspective Limit risks through balanced portfolio with “not too much”: Short-term debt Floating rate debt Foreign denominated debt Accurate records and good datasets Timely payments

Shared Interests Debt & Fiscal Managers keenly interested in: Sound fiscal & liquidity management strategies: (reasonable financing requirements and overall exposure risks) Sound debt strategy Sound operational practices in debt mgt: - All debt service obligations met on time - Complete, accurate timely debt flow and stock data Sound portfolio structure: - Low & balanced risks and costs

Interests Shared by Central Banks Government financing from domestic banking sector or CB crowding out, int. rates, inflation, XR External financing affects capital and current accounts & exchange rate Credit rating and country’s reputation in credit markets (market access) Consistency with overall liquidity management effort and reserves management

Sound debt management Contributes to stability and sustainability Assessment by credit markets, bond ratings: Keep risk premium low & retain market access Affects not just Gov’t but also all economic agents in country Low interest rates and costs frees fiscal resources for other uses Country’s reputation: Strong Debt Office is window on the World (comes from MTDS & operational efficiency Balanced portfolio Timely payments of all debt obligations Accurate data sets From MF perspective

Some of the risks & shared concerns Market risks: Δ in interest rates, exchange rates affect interest costs and currency conversion costs Rollover risks: more expensive terms than maturing debt Inability to roll over at acceptable terms Alluded to previously

Some of risks (continued) Liquidity risks: Unexpected cash flow constraints met by unreceptive capital markets just when cash is needed Operational & reputational risks: Errors in daily debt management functions (e.g. late payment, wrong amount, currency conversion errors,… Publish erroneous data Affects market sentiment, access, risk premium… There are the mistakes which may men paying too much or have to pay penalties; and then the longer term reputational effects

Building Synergies Share accurate, timely information early and often: Goes both ways! Set up Technical Working Groups to carry out specific tasks: Formulation of debt targets, and MTFF and DSA preparation (Fiscal in lead), partners - including Debt Office: Supplies required data for debt flows and stocks Advises on credibility of targets Advises on Financial Plan from MTDS perspective

Building Synergies (continued) Other tasks for Technical Working Groups to carry out: MTDS preparation (debt in lead), engage partners (including Fiscal and C.B) who input to ensure supports macroeconomic objectives and strategies Cash management (Fiscal or Treasury) engage partners

MTFF and DSA Depend on Debt Unit Sound macro-fiscal analysis depends critically on debt unit for accurate, timely, detailed historical debt data Derivation of credible debt targets and financing plans requires insights on market conditions and “appetite” for country’s debt from the Debt Office and advice regarding consistency with debt strategy objectives Of course argues for strong front and middle-office capacity

Institutional Issues I continue to argue forcefully for each MoF to set up a strong Macro-Fiscal Policy Unit; key requirement for strategic budgeting I also promote idea that middle-office Debt Office functions need to be done hand-in-hand with the MFU -and in small countries perhaps jointly with or within the MFU: Overlapping clients and considerations Common datasets Similar skill sets

Exploiting Synergies DSAs performed in teamwork fashion in many countries Technical groups have been instituted in a number of countries Cash management committees in many countries

Exploiting Synergies I urge all countries to exploit these synergies I also recommend that the work of the MFUs and Debt Offices be integrated closely in all CARTAC member states. In the end, it is to better serve the Minister and the public Strong institutional links, networking at technical level

Thank you Questions or Comments?