1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Thank you
Questions or Comments?