1. Cash and Debt Management: 20 Years of Organizational Transformations Xavier Rame Fiscal Affairs Department
6th Annual Seminar
International Association of Treasury Services
“State Accounting Reform and Cash Management”
Hammamet, November 16, 2012

2. Acknowledgement
This presentation is based on a chapter authored by John Gardner and Brian Olden in the forthcoming IMF book “Public Financial Management and its Emerging Architecture”, edited by Marco Cangiano, Teresa Curristine and Michel Lazare, to be published on April 2013.

3. 20 years of changes in governments’ financial assets and liabilities management
Government banking arrangements and payment systems
Development of active cash management
Availability of information to improve government cash planning
Increased borrowing levels and exposure to financial markets
What has changed ?

4. Sum of All Countries Public Domestic Debt Securities
Source: Bank for International Settlements

5. Cash and debt management: 2 separate functions…
Relatively short-term horizon
Objectives: Finance expected cash shortages and use expected cash surpluses efficiently within defined risk parameters
Cash management
Medium to long-term horizon
Objectives: Meet government financing needs and its payment obligations at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk
Debt management

6. … Facing specific challenges …
Cash Management Challenges
Full government coverage
Buffer levels
Managing credit risks
Debt Management Challenges
Reducing fragmentation of debt portfolios

7. … which have to coordinate their actions
Debt management focused on the liability side of the balance sheet
Cash management carried out by other governmental units or Central Bank
Sub-optimal outcomes: uncoordinated operations or objectives pursued not necessarily in line with fiscal policy objectives

8. Reasons for a Strengthened Coordination of Cash Management and Debt Management
Manage government’s financial resources as a portfolio
Ensure consistency of signals sent to the market regarding the government’s financial management strategy
Optimize the management of assets and liabilities
Take debt issuance decisions in the context of the government’s overall cash flows
Improve information flow and coordination of strategic debt issuance decisions to ensure that they are made with full knowledge of the government’s net cash flow position
Consolidate scarce professional skills
Design specific approaches to attract and retain the appropriate set of skills
Integrate information systems and transaction processing procedures
Streamline the use of IT systems and back-office facilities and procedures

9. A trend toward the integration of the 2 functions in Debt Management Offices (DMOs)
Fragmentation of debt portfolios
Creation of DMO
DMO in charge of cash management
DMO in charge of government financial portfolio

10. Lessons Learned from Country Experiences: an Evolution to Address a More Complex Environment
DMOs typically established with debt management as primary focus
Inclusion and integration of cash management
Transfer of other functions to debt manager as expertise and specialization needs increase and Government financing operations become ever more complex
Current financial crisis has increased profile of public debt and asset management offices as competition for capital in international markets intensifies

11. Central Government Debt Management Institutional Arrangements
The “Independent DMO” Model
High degree of delegated authority
Comprehensive legal framework regulating their operations
Ability to recruit and retain staff outside the civil service constraints

12. Lessons learned regarding institutional models
Parameters to consider in setting the DMO’s level of independence
Willingness of the parliament/government to delegate debt management authority to professional debt managers
Existence of adequate monitoring, control and audit systems to ensure agent is pursuing the strategic objectives of the principal
Capacity of Mof to develop and deliver strategic guidelines to the DMO to meet these objectives
Systems in place to enable integration of debt and cash management with other areas of public financial management

13. Lessons learned regarding institutional models
Institutional setting not as important as organizational structure, roles and responsibilities
If these conditions not met a DMO within the Mof/Treasury may be the most appropriate solution
Allows capacity development in a controlled environment and ensures linkages with other reforms in the PFM area
Develops capacity in the MoF

14. Examples of Central Government Debt Management Institutional Arrangements
Separate and independent DMO
Separate DMO as agency of Mof
DMO within Treasury or Mof
DMO within CB
Sweden
Ireland
Germany
Hungary
Portugal
New Zealand
Australia
Belgium
Nigeria UK
Netherlands US
China
Japan
Canada (shared with BoC)
Chile
France
Russia
Spain
Italy
Mexico
Brazil
Turkey
Korea
Thailand
Indonesia
Colombia
Argentina
Denmark
India
India: External debt is managed by the Ministry of Finance. Possibility of establishment of a new debt management agency is currently under consideration.

15. Challenges for cash and debt management in developing countries and emerging markets
Resistance to change
Complexity of setting a TSA
Accuracy of cash planning
Access to capital markets
Capacities
Legal framework
Integration with the overall PFM system

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