Posted by Sailendra Pattanayak
The IMF Fiscal Affairs Department (FAD) conducted a Professional Development Seminar on Debt Management on December 10, 2008. The focus of the seminar was on recent trends in debt management practices and what debt managers could do to help alleviate the impact of the current financial crisis. The role of debt management in overall fiscal sustainability was discussed, and coordination of debt management strategy with fiscal and monetary policies was emphasized. The seminar consisted of three separate theme-based sessions, with presentations by staff from FAD as well as from the Monetary and Capital Markets (MCM) Department of the IMF.
Session 1 (based on the topic “Why Debt Management is Important?” ) provided an overview of the risks that sub-optimal debt management policies could pose to fiscal stability and investor confidence. The session included a discussion on some of the issues that have arisen during the recent financial turmoil and how prudent and well-planned debt management strategies could help to mitigate some of the impacts of severe fiscal downturns on the fiscal position. The session also discussed how a realistic debt management strategy must be firmly rooted in a realistic fiscal framework if the objectives of debt management are to be achieved, including the ability to finance the government’s financing requirement.
Session 2 (based on the topic “The Need to Integrate Debt and Cash Management" ) emphasized an integrated approach to management of government liabilities and liquid assets and identified some of the prerequisites that need to be addressed in moving from a cash rationing system toward active cash management. The importance of consolidated government banking arrangements, robust cash forecasting capacity, sound institutional arrangements, and availability of appropriate financial instruments to actively manage the government’s financial needs were discussed. The increasing tendency for traditional debt manager to assume the role of government financial resource manager was also discussed. Examples of advanced and low-income countries were provided to highlight the issues and challenges faced by countries at different stages of development.
Session 3 (based on the topic “Debt Management and Financial Markets” ) discussed how debt management reforms in many emerging markets in recent years have included the development of domestic debt markets. The success of these initiatives and the impact of the current financial crises on these markets going forward were also discussed. This session also covered issues sorrounding the role of governments as major stakeholders in development of domestic financial markets, particularly in emerging markets, and some of the weaknesses and issues that still remain to be addressed – the governments typically lead the way in introducing new products and innovations, providing pricing guidance for other issuers through development of a government yield curve, and establishing the necessary regulatory and infrastructure frameworks. The need to ensure coordination of fiscal and monetary policy as domestic financial markets develop was also emphasized.
Presentations made by FAD and MCM staff during the above sessions were highly appreciated and led to useful discussion among the seminar participants.
