Debt Managers Navigate Post-Crisis Risks

Officials steer debt management policies in tough environment

Countries strengthen operations, risk management to reassure markets

Structure, composition of countries' debt as important as level of debt

Debt management practices can help manage investor expectations, which is critical to mitigate the buildup of sovereign risk.

In a signal to reassure financial markets, debt managers from around the world met in Stockholm this summer and agreed a set of principles for effective and transparent debt management.

The IMF brought together debt managers from 33 countries as well as central bankers, representatives from the private sector, and other international financial organizations for the 10th Annual Debt Managers’ Forum in Stockholm on July 1–2.

The 10 principles reaffirmed a series of practices and principles already embraced for a number of years by most countries’ debt managers. The principles are organized around three main areas: framework and operations, market communication strategies, and risk management.

Operations—preserve sufficient flexibility to minimize the risk associated with the execution of issuance programs and liability management operations, while accounting for their financial stability implications, and supporting information sharing at the domestic and global levels.

Communications—maintain an open dialogue among debt managers and with other policymakers as well as financial markets, and share any changes that may occur to avoid surprises and support a predictable operational framework.

Risk management—adopt and communicate with investors a strategy to keep a broad range of risks at prudent levels, while minimizing funding costs over the medium to long term.

High levels of debt limit options

High levels of public debt, especially during crises, limit governments' policy options and curtail their ability to absorb additional risks in their balance sheets, according to the IMF.

Public debt managers are the officials who decide how best to borrow money for a government and manage the accumulated debt, including its associated financial risks. Their actions also directly impact a country’s bond market, as well as international capital markets. Their primary goal is to minimize government borrowing costs over the medium term, subject to prudent levels of risk. Debt managers can borrow using securities with different characteristics (e.g. short, medium, or long term; domestic or external; issued at fixed or...