Poland
| Pages | 167-178 |
Page 167
In 2001, the evaluation of the existing objectives and changes in macroeconomic conditions led to revision of the existing objectives.12 The new objectives were incorporated in the strategy of debt management for the years 2002-04. The major change in comparison with the previous strategy was a shift in emphasis regarding the goal of cost minimization, from reducing the cost burden in the three-year time horizon to long-term cost minimization. The objectives are divided into two groups with three main objectives and four complementary (conditional) objectives. The fulfillment of the conditional goals will depend on the situation in the financial markets.
The main objectives are:
- Minimization of debt service costs: This is to be achieved through an optimal selection of debt management instruments, their structure, and issue dates. The time horizon is determined by the maturities of debt management instruments with the longest maturity.
- Limitation of the exchange rate risk and the risk of refinancing in foreign currencies: This objective is to be met mainly through reducing the share of foreign debt.
- Optimization of state budget liquidity management.
The complementary (conditional) objectives are:
- Limitation of the refinancing risk in the domestic currency is to be mainly achieved through the rise in the average maturity of domestic debt.
- Limitation of the interest rate risk is to be met through increasing the share of long-term fixed- rate instruments in total debt.
- Increasing flexibility of debt structure is to be achieved mainly through conversion of nonmarketable debt into marketable instruments.
- Decrease in debt monetization is to be met through increased share of the nonbanking sector in total debt. Page 168
The debt management policy pursued by the central government encompasses all activities involving the management of state budget debt. This includes the issuance, management, and service of treasury securities as well as the management and monitoring of other liabilities of the state budget. The influence on the central government debt, other than state budget debt, as well as on the local government debt, is indirect only (unless special procedures of recovering sound financial policies are executed) and includes imposing legal and formal regulations.
To coordinate the debt management policy with monetary and fiscal policies, the committee of public debt management was founded in 1994. The committee comprises members from the ministry of finance (MoF), the National Bank of Poland (NBP), and the ministry of state treasury. The meetings of the committee are held monthly and have an advisory character. However, the participation of directors of crucial departments of the MoF and the NBP, responsible for implementing and executing the policies, ensures a strong informal authority of the conclusions drawn by the committee. The main fields discussed by the committee include monthly plans for financing the state budget borrowing needs, the budgetary situation, and the situation of the money market.
The management of liquidity is coordinated on an interdepartmental level within the MoF. Under the constraint of a predetermined safe level of the balance of the account (excluding the risk of losing liquidity), the coordination ensures the minimization of alternative costs of holding cash on the central government account. The main instruments of the liquidity management are short-term deposits of surplus cash and issuance of short-term treasury bills.
The Constitution of the Republic of Poland, Article 216 forbids the acceptance of loans and grant guarantees and sureties, as a result of which the relation between public debt augmented by the amount of the anticipated disbursements on sureties and guarantees to the annual gross domestic product would exceed 60 percent. With the purpose of not exceeding the limit referred to in the principal rule, a provision of similar content was included in Article 37 of the Public Finance Act and reinforced in Article 45 by the definition of the so-called prudence and recovery procedures that come into play if the 50 and 55 percent thresholds are exceeded. The minister of finance must control the public finance sector in general and, to ensure the principal rule, the state treasury debt.
The basic legislation governing the conditions of the government debt managers is the Public Finance Act. Under this act, only the minister of finance is authorized to draw financial commitment on behalf of the state treasury, repay the drawn commitment, and carry out other financial transactions connected with debt management, including transactions related to derivative financial instruments.
The Public Finance Act requires the minister of finance to develop a three-year strategy of public finance sector debt management. At the same time, the minister of finance also presents a strategy for influencing public sector debt. These two topics are presented in one document. The need for these regulations was a consequence of the provisions of the Constitution of the Republic of Poland.
To govern the general conditions of issuing bonds, in 1999, the minister of finance issued five ordinances under the delegation laid down in the Public Finance Act.
The debt management unit in Poland is situated within the MoF. As one of the units of the ministry, the public debt department (PDD) manages day-today debt policy, prepares the strategy of debt management, and cooperates with the Polish and international financial markets in the fields of borrowing and development of the treasury securities market.
The position of the PDD as a part of the MoF has advantages and disadvantages. At the very early stage Page 169 of development of the domestic financial market, when the transition to the free market economy had just begun, the PDD (the unit with administrative power) had more instruments to support development of the market, cooperate with other regulatory institutions, and prepare efficient legal and infrastructure environments.
Along with the development of the market in Poland, the situation has changed. The number of sophisticated market participants has increased, the base of securities is well developed, and hedging instruments are available. Together with challenges in the risk management of the debt, a more flexible and active approach to debt management is required. The bureaucratic structure in the MoF, subjected to long procedures, hampers the flexibility of debt management. The tendency in Organisation for Economic Co-operation and Development (OECD) countries to separate debt management offices from the MoF is based on experience of being a unit of the MoF, which makes it hard to avoid the conflict between short-term objectives of the fiscal policy and the longer-term ones for debt management. Lessons learned from the yearly meetings of the OECD working group indicate that acting outside the MoF as a separate debt office makes it possible to avoid direct intervention in the borrowing policy, the structure of offered instruments, and the policy of minimization of debt-servicing costs on the medium- and long-term horizon.
In 1998, domestic and foreign debt management were concentrated in the PDD and divided into four functional units: front office, middle office, back office, and the foreign debt unit. The decision to develop a separate unit for foreign debt was the result of the sizable percentage of foreign debt within total debt. However, external financial institutions perform a large part of the traditional front and back offices operations, and the work of the PDD retains a rather analytical character. Currently, 49 people work at the PDD.
The framework and the point of reference for daily debt management will be described in the next section, where objectives and tasks of debt management are clearly defined. The formal procedures of daily management are still a work in progress.
The main operating risk of debt management is the lack of an integrated information system for debt management, because the databases are fragmented and not fully compatible with each other. The integrated debt management system was implemented by the end of 2002.
The financial accounts of the public debt, as well as other parts of the state budget, are subject to annual audit by the supreme...
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