Front Matter

Front Matter

International Monetary Fund
Published Date:
August 2003
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© 2003 International Monetary Fund

Production: IMF Multimedia Services Division

Cover design: Lai Oy Louie

Typesetting: Grammarians, Inc.

Cataloging-in-Publication Data

Guidelines for public debt management : accompanying document and selected case studies / prepared by the staffs of the International Monetary Fund and the World Bank – Washington, D.C. : International Monetary Fund : World Bank Group, c2003.

p. cm.

Includes bibliographical references.

ISBN 1-58906-194-2

1. Debts, Public. I. International Monetary Fund. II. World Bank.

HJ8015.G687 2003

ISBN 1-58906-194-2

Price: US$31.00

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A government’s debt stock is usually the largest financial portfolio in the country. It often contains complex financial structures and can create substantial balance sheet risk for the government. Several debt market crises have highlighted the importance of sound debt management practices and the need for efficient and sound capital markets. Improved debt management will reduce a country’s vulnerability to economic and financial shocks and support the environment for growth.

The Accompanying Document and Selected Case Studies complements the IMF and World Bank’s Guidelines for Public Debt Management, which were endorsed by the International Monetary and Financial Committee and the Development Committee at their spring 2001 meetings. It illustrates the variety of approaches taken by 18 countries from different parts of the world, and at different stages of economic and financial development, to develop their public debt management practices in a manner consistent with the Guidelines. The experience of these countries should offer some useful practical suggestions of the kinds of steps that other countries could take as they strive to build their capacity in public debt management.

In line with the process adopted for the Guidelines, the preparation of the Accompanying Document and Selected Case Studies has sought to ensure that the description of individual country practice and the lessons learned are well grounded. To this end, the case studies were prepared by government debt managers with the coordination of staff from the IMF and the World Bank. IMF and World Bank staffs also prepared Part I of the document, which summarizes key lessons from the case studies. Two formal rounds of consultations were held with the country officials who prepared the case studies, and an outreach conference organized by IMF and World Bank staffs was held in Washington in September 2002 so that the country officials could meet to discuss the lessons drawn from the case studies and the book as a whole.

Anne Krueger

First Deputy Managing Director

International Monetary Fund

Jeffrey Goldstein

Managing Director

The World Bank


Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies was prepared by Mats Filipsson and Mark Zelmer of the International Monetary Fund, Tomas Magnusson of the World Bank, and the officials from the 18 countries that prepared the case studies. The project was supervised by Piero Ugolini of the International Monetary Fund and Fred Jensen of the World Bank. Valuable feedback and suggestions for improving this book of case studies were obtained from the country officials who prepared the case studies and staff within the International Monetary Fund and the World Bank. In particular, Stefan Ingves and V. Sundararajan of the Fund and Graeme Wheeler and Ken Lay of the World Bank provided very useful comments.

Special thanks are due to Natalie Baumer, who helped to edit this book; Sandra Marcelino for her help in compiling data and preparing charts and tables; and Stephen Swaray for his help in preparing the box “Applying the Guidelines to the HIPCs.” Thanks are also due to William Murray and Sean Culhane of the External Relations Department of the IMF and to Craig Carter of the Public Debt Management Group of the World Bank who managed the production of this document.

Glossary and List of Abbreviations


Asian Development Bank


Asset and Liability Management

ALM Branch

Asset and Liability Management Branch (of the National Treasury, South Africa)


Bank Al-Maghrib (Morocco)




Banco de la República (Colombia)


Bond Exchange of South Africa


Bank of International Settlement


Bank of Italy


Bank of Jamaica


Bank of Japan


Bank of Japan Financial Network System


Bank of Mexico


Bank of Slovenia


Buoni Ordinari del Tesoro


Bureau of the Public Debt


Buoni del Tesoro (Italy)


Buoni del Tesoro Poliennali (Italy)




Central Bank of Brazil


Central Bank of Ireland


Central Bank of Ireland Securities Settlements Office


Clearing Corporation of India Ltd.


Certificati di Credto del Tesoro (Italy)


Cassa Depositi e Prestini (Italy)


Certificados de la Tesorería (Mexico)


Obligacje czteroletnie indeksowane oszczędnościowe (Poland)


Commercial Paper


Committee on Payment and Settlement Systems (of the central banks of the Group of Ten countries)


Cash Reserve Ratio


Copenhagen Stock Exchange


Certificati del Tesoro (Italy)


Certificati del Tesoro con Opzione (Italy)


Certificati del Tesoro Zero-Coupon (Italy)


Lower House of Irish Parliament


Depósito Central de Valores (Colombia)


The Japanese Parliament


Debt Management and Financial Analisis System (Colombia)


The U.K. Debt Management Office


Debt Management Unit (of the Ministry of Finance and Planning, Jamaica)


Danmarks Nationalbank


Obligacje dwuletnie oszczędnościowe o stałej stopie procentowej (Poland)


Debt and Reserves Management Report (U.K.)


Obligacje dziesięcioletnie o oprocentowaniu stałym (Poland)






Obligacje dziesięcioletnie o oprocentowaniu zmiennym (Poland)


European Central Bank


External Commercial Borrowing (India)


Euro Commercial Paper


European Currency Unit


European Economic Community


European Federation of Financial Analysts Societies


European Monetary System


Euro Medium-Term Notes


European Monetary Union


Euro Overnight Index Average


European Exchange Rate Mechanism II


European System of Central Banks


European Union


Euro Interbank Offered Rate


Statistical Office of the European Communities


Financial Administration and Audit


Federal Reserve System


Fiscal Investment and Loan Program (Japan)


Financial Markets Committee


Financial Management Service


Fiscal Responsibility Law (Brazil)


Financial Services Commission


Government Debt Consolidation Fund (Japan)


Gilt-Edged Market Makers (U.K.)


Heavily Indebted Poor Countries


Interdealer Broker


Index-Linked Gilt-edged Market Makers (U.K.)


Instituto de Gestão do Credito Publico (Portuguese Government Debt Agency)


Impôt Général sur le Revenu (Morocco)


International Monetary Fund


International Monetary and Financial Committee


International Organization of Securities Commissions


Instituto de Protección al Ahorro Bancario (Mexico)


Interest Rate Swap


Impôt sur les Sociétés (Morocco)


International Swap Dealers Association


International Securities Market Association


Information Technology


Intermédiaires en Valeurs du Trésor (Morocco)


Jamaica Central Securities Depository


Japanese Government Bond


Letras Financeiras do Tesouro (Brazil)


Lei Orçamentária Anual


Local Registered Stocks (Jamaica)


London Stock Exchange


Letras do Tesouro Nacional


Broad Money 2


The Portuguese acronym for “Special Market for Public Debt”


Ministry of the Economy and Finance (Italy)


Ministry of Finance




Medium-Term Notes


Electronic trading system for fixed-income securities


National Bank of Poland


National Depository for Securities


Negotiated Dealing System


Net Present Value


The National Treasury Management Agency (Ireland)


Notas do Tesouro Nacional - Série C


New Zealand Debt Management Office


Organization for Economic Cooperation and Development


Obligacje dwuletnie zerokuponowe (Poland)


Organismes de placement Collectif en valeurs Mobilières (Morocco)


Obrigações do Tesouro (standard fixed-rate treasury bonds, Portugal)


Over the Counter


Public Debt Department (of the Ministry of Finance, Poland)


Public Debt Direction (of the Italian Treasury Department)


Obligacje pięcioletnie o oprocentowaniu stałym (Poland)


Rating and Investment Information, Inc.


Risk-Adjusted Performance Measurement


Reserve Bank of India


Real-Time Gross Settlement


South African Reserve Bank


Special Data Dissemination Standard


Sistema Electrónico de Banco de la República (Colombia)


Secretaria Adjunta do Tesouro Nacional (Brazil)


Sistema Electrónico de Negociación de Deuda Pública (Colombia)


Secretaria Federal de Controle (Brazil)


Statutory Liquidity Ratio


Swedish National Debt Office


State-Owned Enterprises


Obligacje pięcioletnie o stałej stopie procentowej (Poland)


Social Pension Fund


Separate Trading of Registered Interest and Principal of Securities


Society for Worldwide Interbank Financial Telecommunication


Trans European Real-time Gross Settlement Express Transfer


Tribunal de Contas da União (external auditing agency, Brazil)


Treasury Security (Colombia)


Transfer-Pricing Regime


Obligacje trzyletnie o oprocentowaniu zmiennym (Poland)


United Mexican States


United Nations Conference on Trade and Development




U.S. Dollar Commercial Paper




Ways and Means Advances


Obligacje dwudziestoletnie o oprocentowaniu stałem (Poland)

Executive Summary

Recognizing the important role that public debt management can play in helping countries cope with economic and financial shocks, the International Monetary and Financial Committee (IMFC) requested that staff from the International Monetary Fund and World Bank work together in cooperation with national debt management experts to develop a set of guidelines for public debt management to assist countries in their efforts to reduce financial vulnerability. When the Executive Boards of the IMF and the World Bank endorsed the guidelines in the spring of 2001, they requested that the staff of the two institutions also prepare an accompanying document to the guidelines containing sample case studies to illustrate how a range of countries from around the world and at different stages of economic and financial development are developing their debt management capacity in a manner consistent with the guidelines. The experiences of these countries should offer some useful practical suggestions of the kinds of steps that other countries could take as they strive to build their capacity in public debt management.

The 18 case studies presented in this report clearly illustrate the rapid evolution that is taking place in the field of public debt management. In contrast to 15 or 20 years ago, countries are much more focused on managing the financial and operational risks inherent in the debt portfolio. Also, the way in which the stock of debt is managed is becoming increasingly sophisticated, especially in those countries that have had histories of excessive debt levels or have experienced shocks associated with the reversal of capital flows. These points are embodied in several overarching themes that emerge from the country case studies.

The first key theme is that the objectives for managing debt and the institutional framework for meeting these objectives are becoming more formalized. All of the countries surveyed have explicit objectives for managing their debt, which focus on managing the need to borrow at the lowest possible cost over a medium- to long-term time frame. Most countries’ statements of objectives also make explicit reference to the need to manage risks prudently, but this is not universal. Even so, the reference to managing costs over the medium to long term can be seen as an awareness of the need to avoid taking on dangerous debt structures that might have lower costs in the short run but could trigger much higher debt-service costs in the future. They clearly do not strive to minimize costs in the short run without regard to risk. Avoiding dangerous debt structures is, of course, easier said than done. In some countries, the costs of borrowing domestically by issuing long-term fixed-rate instruments may simply be too prohibitive in the short run because of weak macroeconomic conditions or because this segment of the market is not functioning well. As a result, many countries are dedicating significant effort and resources toward developing the domestic market for government debt so that down the road they can reduce rollover risk and other market risks in the debt stock, even though the benefits of doing so may only emerge over time and entail higher debt service costs in the short run.

Another aspect of the more formal institutional framework can be seen in the organizational structure underpinning debt management. There is a clear trend toward providing a proper legal framework to support debt management, and centralizing debt management activities as much as possible in one entity, even though the preferred entity varies depending on country circumstances. As circumstances permitted, the countries surveyed took steps to separate the conduct of monetary policy from debt management, while ensuring continued adequate coordination at the operational level, so that there is appropriate sharing of information on the government’s liquidity flows between debt managers and fiscal and monetary policy authorities, and so that the two activities do not operate at cross-purposes in financial markets. They have also taken a number of steps to clearly specify the roles and responsibilities of those involved in debt management and subject the conduct of debt management activities to appropriate financial and management controls. This has helped to ensure that appropriate safeguards are in place to manage the operational risks associated with debt management.

The more formal institutional framework has also been accompanied by transparency in debt management activities and appropriate accountability mechanisms. Debt managers in all of the case study countries emphasized the need to ensure that the public is fully informed about the government’s financial condition, the objectives governing debt management, and the strategies and modalities used by debt managers to pursue these objectives. They also use a variety of communication vehicles, such as regular formal reports and media announcements, to report on their performance in meeting the objectives laid out for them and outline in general terms their plans and priorities for the year ahead. In some countries, their performance in both a financial and a broader stewardship sense is also subject to regular external review. This reflects a general consensus among the countries that markets work best, and debt service costs are minimized, when uncertainty regarding the objectives and conduct of debt management and the state of government finances is kept to a minimum.

A second key theme relates to the high level of awareness of the importance of risk management of public debt and of a growing consensus on the appropriate techniques for managing risk. Many of the countries surveyed use cash-flow modeling for analyzing the costs and risks of different debt strategies, where cost is measured as the expected, or most likely, cost of debt service over the medium to long term and risk is the potential increase or volatility in cost over the same period. One rationale for this is that the cost of debt is best considered in terms of its impact on the government’s budget, and that cash-flow measures are a natural way of quantifying this impact. A few countries are beginning to experiment with modeling debt service and macrovariables jointly to more directly measure cost and risk of debt relative to the government’s revenues and other expenditures—that is, to model the government’s assets and liabilities jointly. In a number of other cases, this asset and liability management (ALM) approach has been used in a more limited way by jointly analyzing the risk characteristics of government financial assets (such as foreign exchange reserves) and debt to determine the appropriate structure of debt and assets.

The management of operational risk is also receiving increased attention. In large part, this is addressed by having institutional structures that permit clear assignment of authority and responsibility, operations manuals detailing all important procedures, conflict of interest rules, clear reporting lines, and formal audits. But many debt offices now also have separate middle offices with responsibility for analyzing risk and designing and implementing risk-control procedures. (Some of these same offices also have responsibility for analyzing strategies for managing the costs and risks of debt, although in others, the responsibility for strategic analysis is separate from the risk-control unit.)

Those debt offices, which trade their debt or take tactical risk positions, have particularly strong middle-office control structures. The focus on formal risk analysis and control structures is not universal, however, because it depends largely on country circumstances. In the past, the industrial countries seen as leaders in this field also had large and risky debt structures, including a substantial share of foreign currency debt. Consequently, the benefits of taking a more systematic approach to the financial and risk management of the government’s debt were substantial. Others, which have deep and liquid domestic debt markets and consequently little or no foreign currency debt, have a much less risky debt structure and less of a need for a formal strategy for managing debt based on cost/risk trade-offs. However, emerging market and developing countries, many of which also have had risky debt structures, had a later start in building the capacity for managing this risk. Although some of these countries are now using models and systems that are similar to those in industrialized countries, others are still in the process of building this capacity. Good progress has been made, but the experience of the leading practitioners demonstrates that this process can take several years. That said, some countries may not need to build models and systems as sophisticated as those found in the industrial countries because their debt issuance options are narrower and their markets less amenable to statistical analysis. Instead, they should strive to set achievable goals for their models that are limited to the genuinely useful aspects.

It also is clear that a lot of financial resources and management time is being devoted to developing the technology and systems needed to perform these tasks. This speaks to the need to ensure that the systems acquired are appropriate to the government’s needs, given a country’s stage of development. The systems acquired do not necessarily have to include all of the latest and most sophisticated features—many of the cash-flow simulation models used for cost/risk analysis are spreadsheet based. Countries also have pursued the acquisition of technology in different ways, depending on country-specific circumstances. Some have opted to acquire these systems by purchasing commercially available systems that were designed for private sector financial institutions and customizing them to suit their own needs, and others have opted instead to develop their own systems in-house. Some systems are very basic, focusing on the primary needs of debt recording, reporting, and analysis, and others are integrated with other cash management, accounting, and budget systems. This highlights the fact that the appropriate technology varies considerably depending on country-specific circumstances, and that many countries are still experimenting to find out which systems work best.

A third key theme that emerged from the case studies is the striking convergence in approaches taken by countries to issue debt and promote a well-functioning domestic financial market. Auctions of standardized market instruments are commonly used to issue debt in domestic markets, and debt managers are cognizant of the need to avoid excessive fragmentation of the debt stock if they are to encourage deep and liquid markets for government securities. Where differences exist, they tend to be at the level of execution, such as in terms of the features of instruments issued and the extent to which debt managers are prepared to rely on primary dealers to market their debt to end-investors. Nonetheless, it is important to note that all of the countries surveyed referred to the advantages of working collaboratively with market participants to develop their domestic government securities markets and minimize the amount of uncertainty in the market regarding government financing activities. Over time, this appears to be paying off in the form of more efficient domestic financial markets, and ultimately lower borrowing costs for the government, in that the presence of a thriving domestic market makes it easier for debt managers to achieve a debt-stock structure that embodies the government’s preferred cost/risk trade-off.

Fourth, it is important to highlight what sound debt management in and of itself cannot deliver. It is no substitute for sound macroeconomic and fiscal policies, and on its own will not be enough to ensure that a country is well insulated from economic and financial shocks. Developing public debt management in a manner consistent with the guidelines clearly has an important role to play in fostering prudent debt management practices and contributing to the development of a well-functioning market for government securities. However, many countries also stressed the need for a sound macroeconomic policy framework, characterized by an appropriate exchange rate regime, a monetary policy framework that is credibly focused on the pursuit of price stability, sustainable levels of public debt, a sound external position, and a well-supervised financial system. Such a framework is an important underpinning to instilling confidence among financial market participants that they can invest in government securities with a minimum of uncertainty. It is thus an important precondition if debt managers are to succeed in achieving a debt structure that reflects the government’s preferred cost/risk trade-off and helping the country at large to minimize its vulnerability to economic and financial shocks. Indeed, through their links to financial markets and their risk management activities, government debt managers are well positioned to gauge the effects of government financing requirements and debt levels on borrowing costs, and to communicate this information to fiscal policy advisers.

Finally, although the examples of debt management practices presented in the case studies and the lessons drawn here offer some practical guidance for policymakers in all countries that are striving to strengthen the quality of their public debt management and reduce their country’s vulnerability to economic and financial shocks, they are especially relevant for the heavily indebted poor countries (HIPCs) and developing transition economies. These are at an earlier stage of developing their capacity in public debt management. For them, in addition to continuing to strengthen their budget and cash management functions, an important priority will be to draw from the experiences outlined in the case studies to build a proper foundation for conducting debt management. In this regard, some important first steps for many of these countries are the need to introduce appropriate governance and institutional structures so that the operational and financial risks associated with debt management are properly managed, the need to develop information systems that fully capture the financial characteristics of all of the government’s financial obligations and contingent liabilities, and the need to develop a debt strategy that encompasses both domestic and external debt. The last is especially important, and the experiences of the countries covered by the case studies suggest that the development of a domestic debt market can play an important role over time in helping to broaden the range of borrowing opportunities for a country, making it easier for it to achieve its desired cost/risk trade-off.

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