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...