Public Debt Governance, by Tarun Das

10
UNITAR
Training and Capacity Building Programmes in

Legal Aspects of Debt and Financial Management
Governance of Public Debt:

International Experiences and Best Practices
BEST PRACTICES Series No. 10

United Nations Institute for Training and Research (UNITAR)
Best Practices Series No. 10
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UNITAR Best Practices Series in External Debt Management

Document No. 1: Best Practices in the field of External Borrowing (August 2001)
Document No. 2: Best Practices in External Debt Management (August 2001)
Document No. 3: Best Practices in Drafting Techniques of a Loan Agreement
(October 2002)
Document No. 4: Best Practices and Key Issues to be addressed in a Regulatory
Framework for Public Debt Management (June 2003)
Document No. 5: Best Practices for Poverty Reduction and Sustainable
Development:
Public Participation in Africa (July 2003)
Document No. 6: Best Practices and Key Analytical Functions for Public Debt
Management (February 2004)
Document No. 7: Best Practices in Drafting Arbitration Clauses (March 2004)
Document No. 8: Best Practices in Relation to Guarantee Agreements (June 2005)
Document No. 9: Management of External Debt - International Experiences and
Best Practices (January 2006)
This Series is published and distributed by the United Nations Institute for
Training and Research (UNITAR), Geneva. Orders or requests for information
should be addressed to:
UNITAR
Debt and Financial Management
Palais des Nations
CH-1211 Geneva 10
Switzerland
www.unitar.org/dfm
UNITAR Best Practices Series

Copyright © UNITAR 2006. All Rights Reserved
Views expressed in this document are strictly those of the authors and not those of
UNITAR or any other body of the United Nations.
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Governance of Public Debt - International Experiences and Best Practices
Copyright © 2006 DFM/UNITAR
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Contents
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Page
Introductory Note ……………………………………………………..……… 4
Governance of Public Debt - International Experiences and Best

Practices
1. Introduction ………………………………………………………….. 5
2. Risk Management Framework for Public Debt …………………. 5
3. Institutional and legal set-up for public debt management …… 8
4. Governance: Legal Framework and Accountability…………….. 16
5. World Bank Survey on Debt Management Practices …………… 17
Selected References …………………………………………………… 21
Author’s Profile ……………………………………………………………….. 23
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Introductory Note
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T his edition is the 10th. in a series of Best Practices publications

compiled by UNITAR’s Training Programme in the Legal Aspects of
Debt and Financial Management. It is hoped that this document
entitled ‘Governance of Public Debt - International Experiences and
Best Practices’ will be useful especially to policy makers, senior
government officials, parliamentarians as well as debt managers, civil
society and other officials from Ministries of Finance, Justice, Attorney-
General’s Chambers and think tanks involved in institutional and
legal/regulatory issues relating to public borrowing and debt
management.
This document forms part of a broader effort by UNITAR’s Debt and

Financial Management Training Programme to sensitize public
professionals in external debt management issues.
These Best Practices have been contributed by Dr. Tarun Das, Economic
Adviser, Ministry of Finance (India) and UNITAR Resource Person. UNITAR
thanks him for his contribution and commitment to our training
programmes as well as research activities.
We hope that this document will be useful as well as challenging to its

readers.
Marcel A. Boisard
Assistant Secretary-General of the United Nations
Executive Director of UNITAR
Geneva, January 2006
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GOVERNANCE OF PUBLIC DEBT -

INTERNATIONAL EXPERIENCES AND
BEST PRACTICES
by Dr. Tarun Das1, UNITAR Expert
1. Introduction
P
ublic debt management practices by leading debt offices bears
many valuable lessons for countries in the process of strengthening
their debt management capacity. As in other spheres, there is no
unique answer as to what constitute sound debt management practices at
all the times and at all countries. Selective discretion should be used while
ameliorating debt management practices based on international
experiences. More importantly, the country specific requirements should
be carefully analyzed so that the international best practices could be
grafted effectively. A country should own its system and develop it over
the years.
2. Risk Management Framework for Public Debt
Efficient public debt management primarily aims at ensuring that

government borrowing needs are met efficiently, and the incremental
flows and stock of public debt from both budgetary and off-budgetary
sources are managed in consistency with the government’s preferences for
cost and risk. An objective of minimising debt servicing cost, irrespective
of risk, should not be an explicit objective. Risky debt structures,
characterised by excessive exposure to short-term or floating-rate debt or
debt denominated in or indexed to a single foreign currency can
1
Dr. Tarun Das - Economic Adviser, Ministry of Finance (India), and Resource Person,
UNITAR, Geneva.
This report expresses personal views of the author and should not be attributed to the views
of the Ministry of Finance, Government of India or the UNITAR. The author would like to
express his gratitude to the UNITAR for providing an opportunity to prepare this report and
the Ministry of Finance, Government of India for granting necessary permission for that.
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substantially deteriorate the fiscal position of the government, may put

constraints to access to both domestic and external capital and even
propagate financial market instability. This is particularly important when
the government’s debt portfolio is large relative to the economy’s
economic size. Prudent debt management aimed at reducing both costs
and risks by establishing a low risk currency composition, interest
structure and maturity profile of the government’s debt portfolio could
make a country less susceptible to financial risk and contagion effects.
Several OECD governments have accordingly set government debt

management objectives aimed at minimising debts servicing costs over
the medium and longer-term subject to a prudent level of portfolio risk. On
the other hand, debt management objectives of many emerging market
economies appear to cover their borrowing needs with least cost, lengthen
maturities and diversify funding sources wherever possible and less
attention is paid to managing market risks and refinancing risk.
Although there is no unique solution to tackle various types of risk, general

risk management practices of the government aim at minimizing risk for
government bodies and public enterprises. These include development of
ideal benchmarks for public debt and monitor and manage credit risk
exposures. Table-1 summarizes the strategic sovereign debt management
benchmarks that have been established in various countries.
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Table 1: Structure of strategic portfolio benchmark in selected

countries
Domes- PORTFOLIO BENCHMARK
tic: Interest rate Refinancing
Domestic/
Foreign Maximum
Country Foreign Fix Modified
Curren- ceiling on debt
Currency Floating Duration
cy maturing in next
Benchmarks (ratio) (years)
(ratio) year
Belgium 95:5 Domestic 80:20 4.25 ±0.25 10-15%
Colombia 77:33 Foreign 85:15 3.5 10-15%
88:12* Domestic - 4 ± 0.5 10-15%

Denmark
Foreign - 2.5 ± 0.5 20-25%
Finland 60:40 Foreign 85:15 3.6 -
Ireland 94:6 Domestic 67:33 3.7 Ceiling on all

debt with less
than 5 years to
maturity of 60%
Portugal 100:0 Domestic 60:40 3.0 20% in 12
months, 15% in
subsequent
years
Sweden 94:6 Domestic and “50:50” 3.4 ± 0.4 30% in 12
Foreign months, 15% in
subsequent
years
Usually, governments are risk-averse in their sovereign debt management,

often because governments have strong political incentives to adopt the
risk appetite reflected by the “median voter” decision-making. Evidence
suggests that taxpayers or representative voters tend to be risk averse in
their decision-making and expect the government to have similar risk
appetite in managing its financial interests. Thus, while governments
generally have preference for more stable tax rates over time they tend to
be risk averse for their financial asset-liability management.
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3. Institutional and legal set-up for public debt management
The institutional setting for public debt management in different countries,

could be broadly classified into five categories i.e., (i) a full-fledged debt
office either in the mainstream Ministry of Finance; (ii) under the Ministry
of Finance as a separate entity like the Treasury or a Debt Management
Agency; (iii) autonomous institution outside the Ministry; (iv) in the Central
bank; and (v) the debt office is dispersed between the Ministry of Finance
and the central bank.
The first four categories refer to a full-fledged debt office and could be
differentiated by the location and the degree of autonomy accorded to the
debt office. Table-2, which lists the institutional setting for public debt
offices in different countries, shows that the bulk of the debt offices are
located as a separate agency under the Ministry of Finance with sufficient
degree of operational independence (i.e. second category).
Table 2: Institutional Location of Sovereign Debt Management

Responsibility
Under the Located Located
Ministry of within the elsewhere as an
Finance or Central Bank autonomous
Treasury* entity
Advanced
Economies
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Japan
Netherlands
New Zealand
Portugal
Spain
Sweden
Switzerland
United Kingdom
United States
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Emerging
Economies
Argentina1
Brazil 1
China1
Colombia
Hungary
India
Korea 1
Mexico
South Africa
Thailand1
Turkey
1: Establishment of sovereign debt management offices is currently underway in these
countries.
*: In many countries, although debt offices are under the Ministry of Finance or Treasury,
the debt office is set up as an autonomous entity with sufficient operational independence.
Source: “Sound Practices in Sovereign Debt Management”, FPS Department, The World
Bank, March 2000; OECD as mentioned in “Risk Management of Sovereign Assets and
Liabilities”, Working Paper, WP/97/166, IMF, December 1997 and national authorities.
In terms of the degree of independence accorded to the debt office, the

institutional setting for the above category resembles the third category,
i.e., where the debt office is located as an autonomous entity. Although, in
the first three cases, the debt office may be located under the Ministry of
Finance or as an autonomous agency, the central bank still retains some
agency services for debt management and in some cases undertake
foreign exchange operations for its foreign currency debt and cash
management. Denmark is the only country, where its central bank,
Nationalbanken houses the debt office for the government. In India, debt
management factions are shared by the central bank and the Ministry of
Finance. While the Reserve Bank of India acts as the manager on the
internal debt of the government, the Ministry of Finance is responsible for
the management of external debt.
International experience suggests that centralised debt offices in most

countries are located under the Ministry of Finance. This is because MOF in
general is in charge of dealing multilateral financial institutions and
bilateral donors. Within this institutional structure, in most of the advanced
countries, the debt offices are set up as an autonomous or separate entity
within a Treasury or as a statutory unit. This enables the debt office to
assume sufficient degree of operational independence Thus, for thirty
countries for which data is available, twenty-four have their debt offices
under the Treasury/ Ministry of Finance. This includes all the emerging
economies for which information is available.
The main argument for entrusting sovereign debt management

responsibility within the Ministry of Finance or Treasury is the proximity of
location, which enables the senior management within the Ministry of
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Finance to review and assess the performance of the entity more easily.
This issue of geographical proximity is particularly important when a full-
fledged centralised debt office is being set up and management
competencies are unproven.
Another factor, which prompted many governments to locate the debt

office within the Ministry of Finance is that the public debt has budgetary
implications and co-ordination between budget making and the debt office
facilitates effective management of debt and fiscal deficit. This
arrangement thereby minimises chances of any conflict arising from the
budgetary process wherein the annual borrowing requirements are
determined and the management of such liabilities. The downside risk of
unsustainable borrowing has been obviated in most of the cases, by legal
enactment of authorising annual borrowing with a preset limit (Tables 3
and 4) and practising policies of fiscal prudence.
Table 3: Institutional Arrangement of Debt Offices and Annual

Borrowing Authority or Debt Ceiling Limit
Institutional Countries Limit on Annual Debt Ceiling
Arrangement Borrowing Limit
Authority
Ministry of
Finance
Belgium ×
Canada ×
Finland ×
France ×
Germany ×
Greece ×
Hungary ×
India ×
Italy ×
Mexico ×
Morocco ×
New Zealand ×
United States ×
United Kingdom ×
Autonomous
Agency
Australia ×
Ireland ×
Portugal ×
Sweden ×
Central Bank
Denmark ×
Source: Guidelines for Public Debt Management, SM/00/135, IMF.
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Table 4: Legal Framework for Debt Offices

Countries Limit for Domestic Decides new limits
Borrowing
Ministry of
Finance
Belgium Limit on the cost of borrowing The Parliament
Canada Yes, Borrowing Authority Act The Parliament
Germany Yes, a limit is set by federal The Parliament
legislative authorization
(Budget Law)
Greece No, except for the limit to T-
Bills
India Yes, a limit is set by Budget The Parliament
Law
Japan Yes, a limit is set by Budget The Parliament
Law
Mexico Yes, a limit is set according to The Congress
the Federal Budget
Netherlands Implicit limit (budgeted -
borrowing)
New Zealand No legal limit MOF may alter the
program
Switzerland No legal limit -
Turkey Only for govt. bonds the limit For govt. bonds, the
is twice the budget deficit Parliament
United Kingdom Limit by the funding remit -
Autonomous
Agency
Australia Yes, financial year budgetary DMO and the
need Treasurer
Austria Yes, the limit is set by the The Parliament
Financial Law
Ireland No -
Sweden Limit only for foreign -
exchange funding
Central Bank
Denmark Limit on the level of debt The Parliament
outstanding
Source: OECD as mentioned in “Risk Management of Sovereign Assets and Liabilities”,
Working Paper, WP/97/166, IMF, December 1997.
Few debt offices (e.g., Australia, Austria, Ireland, Portugal and Sweden)
have also been set up as an autonomous debt agency or corporation
outside the Ministry of Finance giving it a distinct institutional presence.
This was established with legislation (e.g. Ireland and Portugal) or without
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legislation (e.g. Australia and Sweden). Very recently, Germany have

decided to take out the debt management functions from the Ministry of
Finance to an autonomous set up as a private corporation. The overriding
reason for creating an autonomous institution emanated from the concern
of conflicts in objective between fiscal policy and debt management. Thus,
an autonomous debt office would be less likely to engage in risky
strategies designed to maximise short-term political gains. Another
common concern has been the influence on interest rate. Thus, any
perception of insider trading or market manipulation would undermine the
credibility of the government, the debt office and the market. The risk of
debt management and cash management being downplayed by a large
institution like the Ministry of Finance could result in the commercial needs
of the business being inadequately funded.
The degree of autonomy in such debt offices, vary from country to country
(Table-5). Although the debt offices are autonomous in nature, most of
them either report to the Minister of Finance or to the Parliament. Thus,
while the formulation of debt policy like level of the debt, limits on
domestic and foreign-currency borrowing is a political decision and
therefore should rest with the government, the actual management of
sovereign debt can be extracted from the political domain by assigning
such responsibility to an autonomous institution. Under this arrangement,
the Ministry of Finance, based on its objectives, risk preferences and
macroeconomic and institutional constraints of the country, defines the
medium-term strategy for debt management; while the debt office
implements that strategy and administers the issuance of domestic and
foreign currency debt.
Table 5: Degree of Autonomy for Debt Offices

Countries Degree of Autonomy
Ministry of
Finance
Belgium Not independent
Canada -
Germany Independent except for independent matters
Greece -
Japan Dependent
Mexico Independent within the broad objectives of the
Development Plan
Netherlands Independent
New Zealand No specific independence
Switzerland Independent, except for restriction on some type of
institution
Turkey Independent under normal circumstances
United Kingdom Independent within limits set by the remit
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Autonomous
Agency
Australia Highly independent
Austria Highly independent
Ireland Independent in some broad guidelines drawn by the
MOF
Sweden Independent except for foreign exchange
Central Bank
Denmark Borrowing program is approved by the MOF
Source: OECD as mentioned in “Risk Management of Sovereign Assets and Liabilities”,
Working Paper, WP/97/166, IMF, December 1997.
The issue of conflict in objectives between debt management and

monetary management has led to many central banks transfer its debt
management responsibility back to the government or to an autonomous
agency outside the Ministry of Finance. In view of the potential conflicts in
objectives between debt management, monetary policy and exchange rate
management, Austria, Hungary and United Kingdom have recently shifted
their debt management responsibility out of the central bank. In New
Zealand, all debt management functions carried out by the central bank, as
agent of the debt office, have been conducted without reference to
monetary policy considerations since 1988. Moreover, in South Africa, after
a thorough review of debt policy, the central bank, which until recently,
has been the government’s agent for marketing its debt instruments, was
made accountable to the Department of Finance on all matters related to
debt management. Funding activities undertaken by the central bank on
behalf of the government were ring-fenced from monetary policy
operations.
Denmark is the only exception, where in 1991 the Danish government

decided to regroup assets and liabilities management under the central
bank’s authority. The rationale behind the decision was to improve the
coordination of the management of the public debt and the foreign
exchange reserves, and to reduce the net exposure of the government to
exchange rate risk. Some governments recognise the fact that the central
bank has more staff with market transaction experience. The efficiency
advantage has led to some central banks (United Kingdom and Brazil)
undertake the government’s foreign currency borrowing. For countries,
which have already established their debt offices, the central bank, still
retains some debt management functions like book-keeping, registry
services etc under an agency agreement between the Ministry of Finance
and the central bank. For some countries, cash management and foreign
exchange transactions related to foreign currency debt are also
undertaken by the central bank.
For the fifth category of debt offices, public debt management

responsibilities are typically split, with the Ministry of finance in charge of
the public external debt management and the central bank is responsible
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for domestic debt management. Table-2 shows the split nature of debt
management responsibilities for some emerging market economies till
recently. Among the emerging market economies, some countries like
Colombia, Hungary, Mexico and South Africa have already established a
full-fledged debt office under the Ministry of Finance. Further more, some
countries like Argentina, Brazil, China and Thailand have started initiatives
to set up a debt office under the Ministry of Finance. To establish a public
debt office, the starting point for all these countries has been to strengthen
the capacity building of the debt office by establishing a middle office.
Management of External Debt
As regards external debt, most of the countries donot allow Subnational or

provincial governments to borrow directly from the external sources
(Table-6). Only the Central government borrows from multilateral and
bilateral sources and then on lends money to the states and local
governments.
Table 6: Institutional Framework for Foreign Currency Debt

Management in Emerging Economies
Countries Central Govt. State & Local State Owned
Govt. Enterprises
China MOF Not allowed SOEs
India MOF Not allowed SOEs
Indonesia MOF Not allowed
Korea MOF Own SOEs
responsibility
Singapore None
Thailand DMO under MOF None MOF
Argentina MOF Own
responsibility
Chile MOF Not allowed MOF
Colombia MOF State Govts./MOF SOEs/MOF
Mexico MOF State Owned MOF
banks
Peru DMO under MOF DMO under MOF MOF
Venezuela MOF Not allowed Not allowed
Czech Republic None MOF SOEs
Hungary DMO under MOF None
Poland MOF Own
responsibility
Russia MOF Regional agencies
Israel MOF Own SOEs
responsibility
South Africa DMO under MOF Not allowed MOF
Source: “Managing foreign debt and liquidity risks in emerging economies: an overview”,
John Hawkins and Philip Turner, as excerpted in “Managing Foreign Debt and Liquidity
Risks”, BIS Policy Papers, No. 8, September 2000.
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Nearly all of the autonomous debt management offices have adopted an

organizational structure similar to that in leading corporate treasury and
investment banks. They divide functional responsibilities for managing
transactions into different offices within the debt management organization
and established procedures to ensure internal control and accountability.
Sound governance considerations suggest that debt management functions
should be organized as separate units given their different objectives,
responsibilities and staffing needs. Usual practice is to establish a
separate front, middle, back and head offices.
(i) The Front office
The front office is responsible for the efficient execution of all

portfolio transactions and negotiations with lenders consistent with
the portfolio management policy of the agency. These transactions
may include short- and medium-term borrowing in domestic and
foreign currencies, management of trading positions and hedging
transactions, the investment of foreign currency liquidity and any
excess cash balances associated with the government's daily
departmental cash management. Within the front office, individual
portfolio managers are assigned different functional responsibilities
(e.g., foreign currency borrowing, liquidity management, domestic
currency funding) on an instrument, market, or currency basis.
(ii) The Middle office
The middle office (or risk management office) is responsible for

establishing a risk management framework for the debt office and
for monitoring compliance against the portfolio and risk
management policies, which form part of asset-liability
management. It is also responsible for identification, measurement
and monitoring of debt and risk, establishment of benchmarks,
dissemination of data and policy formulation for both short and
medium term and public and private debt.
(iii) Back Office

It is responsible for accounting, auditing, data consolidation and the
dealing office functions for debt servicing.
(iv) Head Office
It is the final authority to approve all public debt- both domestic and
external.
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4. Governance: Legal Framework and Accountability
Sound governance practices are an integral part of sovereign debt

management. In order to establish appropriate accountability for
managing the sovereign debt portfolio, most governments have in place
legislation pertaining to powers to borrow, invest, issue guarantees and
undertake transactions on behalf of the government (Tables 3 and 4). This
overcomes the need to request specific authorisations from the Parliament
or the constitutional authority for individual transactions, which can
introduce and a range of political factors into the decision-making and
considerable delay the execution of transactions. For e.g., a study by IBRD
suggests that more than three-fourth of the member countries surveyed, on
an average, took more than a week to obtain approval to execute a foreign
borrowing transaction. This implies that such countries, in their endeavour
to manage the debt portfolio, can only operate with a lag to achieve a
transaction in case there are any desirable market movements in the
international financial market. Such impediments, in a volatile international
financial market, could ultimately prove to be imprudent decision finally
when the transaction is entered into or entail a loss in terms of opportunity
cost for not being able to execute a transaction at the opportune moment.
The authority to issue new debt is normally stipulated in the form of either
borrowing authority legislation with a pre-set limit or a debt ceiling.
Legal arrangements are supported by delegation of appropriate authority

to debt managers. A common feature of this type of legislation is that the
authority for borrowing or financial transaction decision rests with the
Minister of Finance or Treasury and requires the Ministry to be
accountable for these decisions to the Parliament. The Minister, in turn,
delegates the decision-making authority to the head of the debt office. All
delegations pass through the head of the debt agency to portfolio
managers and any other staff with responsibility. For example, in Portugal,
a statue specifies responsibilities, administrative and supervision
framework, delegation of powers, distribution of tasks and the overall
financial structure.
Objectives for government debt management are clearly specified,

publicly disclosed and included in legislation, wherever possible in order
to reduce uncertainty as to the government’s willingness to trade-off cost
and risk. Unclear objectives can often lead to poor decisions on how to
manage the existing debt resulting in a potentially risky and expensive
portfolio. Lack of clarity might also create uncertainty within the financial
community leading to a higher risk premia.
The above arrangements are supplemented with establishment of a risk

management framework. The strategic benchmarks for portfolio
management of the sovereign debt, in terms of the currency, interest and
maturity mix, produced by the debt office needs to be approved by the
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Minister of Finance on an annual basis. For countries where the debt

agency is outside the Ministry of Finance or Treasury, the
recommendations made to the Minister of Finance are made by the
Ministry of Finance in conjunction with the debt office. This requires a
counterpart unit in the Ministry of Finance, which is usually compact, to
supplement the recommendations of the debt office while approving the
strategic benchmarks. Once the benchmarks are approved, the debt office
would be independent to operate for achieving such strategic
benchmarks. For few debt offices pursuing active portfolio management,
tactical trading limits are imposed on the portfolio manager.
The legislation also ensures that there is appropriate auditing of the

financial transactions undertaken by the debt office to ensure that they
comply with generally accepted accounting practices and the portfolio
management policies of the debt office. There is in general comprehensive
reporting of financial performance to the Finance Minister and/or
Parliament.
Irrespective of the institutional structure of the debt office, legal

arrangements clearly specify the organisational set-up for debt
management. Authorizing an outside body of advisors (constituting of a
board of directors etc.) is used frequently to provide quality advice on
debt management on a regular basis to the head of the debt office and the
Finance Minister. Thus, autonomous debt agencies in countries like
Sweden and Portugal, are managed by boards, appointed by the
government and chaired by the head of the debt office. Advisory boards
with mainly non-governmental members work with the autonomous debt
agency in Ireland. In countries like Belgium, Colombia, Hungary and South
Africa where the debt office is located within the Ministry of Finance,
committees staffed mainly from the Finance Ministry, other government
agencies and the central bank, meet regularly with the government debt
managers to discuss broader government debt and asset management
issues. On the other hand, for the debt office in New Zealand, which is
located in the Treasury, the Advisory Board comprises mainly of non-
governmental members to establish greater transparency in the decision-
making and supervision process.
5. World Bank Survey on Sovereign Debt Management
While organizing the Second Forum on Sovereign Debt Management in

November 1999, World Bank conducted a survey on sovereign debt
management practices in the countries participating in the Forum. The
results of the survey summarized in Table-7 are revealing and self-
explanatory. Some of the survey results are at variance with that analyzed
in the preceding sections. This is because the survey results are based on
the replies given by the respondents, and majority of the participants did
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not send any reply. Therefore, the analysis is only indicative and may not
be true for the universe.
Table 7: World Bank Survey on Second Sovereign Debt Management

Forum
Items Percentage in
total
respondents
1. Public Debt management objectives and priorities
(a) To minimize financial costs and risks 38
(b) To raise funds for financing government budget 26
(c) Management of debt 15
(d) Development of financial markets 9
(e) Others 13
2. Establishment of benchmarks for risk
management
(a) Countries establishing guidelines for risk 45
management
(b) Countries establishing benchmarks for foreign 24
currency debt
(c) Countries establishing benchmarks for portfolio 21
performance
(d) Countries establishing benchmarks for domestic 13
debt
3. Risk management guidelines
(a) Limits on currency risk 35
(b) To avoid excessive short-term debt /smooth 29
maturity profile
(c) Incur debt in least volatile currency 24
(d) Limits on debt with floating interest rate 18
(e) To maintain debt matching reserves 12
(f) Others 18
4. Analytical techniques for undertaking risk analysis
(a) Not using any analytical techniques 32
(b) Value-at-Risk (VAR)/ Cost-at-Risk (CAR) 23
(c) Debt sustainability indicators 16
(d) Others 29
5. Constraints for establishing benchmarks
(a) Lack of debt management policy 23
(b) Lack of debt management expertise 23
(c) No access to financial markets 13
(d) Lack of debt monitoring 10
(e) Difficult economic environment 10
(f) Others 21
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6. Use of derivatives to hedge currency and interest

rate risks
(a) Currency swaps 31
(b) Interest rate swaps 24
(c) Use of exchange commodity futures and options 7
7. Constraints for using derivatives
(a) Lack of technical knowledge 71
(b) Undeveloped financial markets 17
(c) Legal constraints 12
8. Institutions managing the foreign currency debt
(a) Ministry of Finance 51
(b) Jointly by the Ministry of Finance and the Central 30
Bank
(c) Central Bank 11
(d) Independent Debt Office 9
9. Coordination of both public and private debt
(a) Ministry of Finance 35
(b) Jointly by the Ministry of Finance (MOF) and the 24
Central Bank (CB)
(c) Partly by MOF and partly and independently by the 24
Central Bank
(d) Debt Management Committee 18
10. Highest authority for approval of foreign Dom. Ext.Debt
currency debt debt
(a) Finance minister/ Governor of the Central 72 49
Bank
(b) Parliament 6 21
(c) Interministerial board 8 12
(d) President/ Prime Minister 6 9
(e) DG of independent authority 8 9
11. Average time taken for approval of external debt
(a) One day or less 10
(b) Less than a week 13
(c) More than a week, but less than three months 65
(d) More than three months 13
12. Management of Contingent liabilities
(a) Sub-national entities are allowed to raise their own 69
funding abroad
(b) Central govt provides explicit guarantees for IBRD 68
loans
(c) Central govt bears fully the exchange rate risk for 41
IBRD loans
(d) Central govt shares partially the exchange rate risk 11
13. Efficiency of Middle Office
(a) Use of Market Information system (MIS) 76
(b) Access to internet 91
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_______________________________________________________________________________________________________
(c) No Middle Office Unit 43

(d) Distinct Middle Office Unit 43
(e) Middle Office placed under the direction of the 3
Front Office
14. Main constraints for external debt management
(a) Lack of proper organizational structure 31
(b) Macroeconomic risk 14
(c) Lack of technical staff in the middle office 12
(d) Lack of technical staff in the back office 6
(e) Lack of legal framework 6
(f) Limited local debt market 6
Source: Fred Jensen (2000) as given in World Bank (2000)
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_______________________________________________________________________________________________________
Selected References
Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External
Debt Management, pp.77-95, in External Debt Management, ed. by A.
Vasudevan, April 1999, RBI, Mumbai, India.
_______ (1999b) Fiscal Policies for Management of External Capital Flows,

pp. 194-207, in Corporate External Debt Management, edited by Jawahar
Mulraj, December 1999, CRISIL, Bombay.
_______ (2000) Sovereign Debt Management in India, pp.561-579, in

Sovereign Debt Management Forum: Compilation of Presentations,
November 2000, World Bank, Washington D.C.
_______ With Raj Kumar, Anil Bisen and M. R. Nair (2002) Contingent
Liability Management- A Study on India, pp.1-84, Commonwealth
Secretariat, London
_______ (2003) Management of Public Debt in India, pp.85-110, in

Guidelines for Public Debt Management: Accompanying Document and
Selected Case Studies, 2003, IMF and the World Bank, Washington
D.C.
_______ (2004) Financing International Cooperation- A Case Study for

India, pp.1-46, Office of Development Studies. March 2004, UNDP, UN
Plaza, New York.
________ (2005a) Sustainable external debt management- International

Best Practices, pp.1-46, paper prepared for UN-ESCAP, Bangkok,
September 2005.
ESCAP (2005) Implementing the Monterrey Consensus in the Asian and

Pacific Region- Achieving Coherence and Consistency, United Nations,
New York, 2005.
International Monetary Fund (2003) External Debt Statistics- Guide for

Compilers and Users, 2003, IMF, Washington D.C.
_______ And the World Bank (2003) Guidelines for Public Debt
Management: Accompanying Document and Selected Case Studies, 2003,
Washington D.C.
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21
_______________________________________________________________________________________________________
Jensen, Fred (2000) Trends in sovereign debt management in IBRD

countries over the past two years, pp.14-25, in Sovereign Debt
Management Forum: Compilation of Presentations, November 2000,
World Bank, Washington D.C.
McCray, Peter (2000) Organisational models for sovereign debt

management, pp.297- 310, in Sovereign Debt Management Forum:
Compilation of Presentations, November 2000, World Bank, Washington
D.C.
Raj Kumar (1999) Debt Sustainability Issues- New Challenges for

Liberalising Economies, pp.53-76, in External Debt Management, ed. by
A. Vasudevan, April 1999, RBI, Mumbai, India.
Sullivan, Paul (2000) The design and use of strategic benchmarks in

managing risk, pp.175-191, in Sovereign Debt Management Forum:
Compilation of Presentations, November 2000, World Bank, Washington
D.C.
World Bank (2000) Sovereign Debt Management Forum: Compilation of

Presentations, November 2000, World Bank, Washington D.C.
_______ (2005a) World Development Indicators 2005, World Bank,

Washington. DC.
_______ (2005b) Global Development Finance 2005, World Bank,

Washington. DC.
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_______________________________________________________________________________________________________
Profile of the Author:

• Dr. Tarun Das has 35 years experience as Development
Economist with specialization in public finance,
budgetary, fiscal and monetary policies, economics of
poverty and inequality, policy planning, project
appraisal, management of external debt, balance of
payments, India's relations with the World Bank, IMF,
ADB, UNCTAD, WTO, Commonwealth secretariat and
ESCAP. " Dr. Das is a Gold Medallist in Economics from
Calcutta University and holds a Ph.D. Degree in Economics as
Commonwealth Scholar from the University of East Anglia, England.
• Dr. Das was the Country Co-coordinator for the IMF Government Finance
Statistics (GFS) and the Special Data Dissemination Standards (SDDS),
Country Coordinator for the World Bank's Global Development Finance
GDF), in charge of the Commonwealth Secretariat Debt Recording and
Management System for India and the World Bank IDF Project on Public
Debt Management. Dr. Das is empanelled as an Expert for the Government
Finance Statistics (GFS) for the Technical Assistance Assignment under IMF
(see Annex).
• Since 1989, Dr. Das has been working as Economic Adviser in the Ministry
of Finance, Government of India. He also worked as Adviser in the
Planning Commission (1987-1988), Chief Economist, Ministry of Steel and
Mines (1984-1986), and the Chief (Economic Division) in the Bureau of
Industrial Costs and Prices (1982-1984).
• Dr. Das was a part of High Level government delegations to the World
Bank, IMF, ADB, WTO, UNCTAD, ESCAP and UN Commission for
Sustainable Development (UN-CSD).
• Dr. Das worked as Government Director in the Board of the Industrial

Investment Bank of India (1993-1995), Allahabad Bank (1996-1998),
Corporation Bank (1999-2001) and Bank of Maharashtra (2002-2004), and
Member in various government committees on Public Finance, Fiscal
Policies, Balance of Payments, External Debt and Environment.
• Dr. Das has worked as Consultant to the World Bank (Washington), Asian
Development Bank (Manila), Economic Commission for Africa (Addis
Ababa), ESCAP (United Nations, Bangkok), UNDP (New York), and
International Labour Office (Geneva).
• Dr. Das possesses diversity in skills in teaching, training, research, policy

planning and modeling. He has published various papers in international
journals on fiscal policies, external finance, management of public debt
and contingent liabilities, poverty and inequality, transport economics,
foreign investment, technology transfer and privatisation policies.
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23
UNITAR
UNITAR is an autonomous body within the United Nations which was established in 1965 to
enhance the effectiveness of the UN through appropriate training and research. UNITAR’s
programmes in the legal aspects of debt, financial management and negotiation are
among a wide range of training activities in the field of social and economic development
and international affairs carried out, generally, at the request of governments, multilateral
organizations, and development cooperation agencies. UNITAR also carries out results-
oriented research, in particular research on and for training, and develops pedagogical
materials including distance learning training packages.
UNITAR’s Training and Capacity Building Programmes in the Legal Aspects of Debt,
Financial Management and Negotiation are conducted for the benefit of over 35
partner countries mainly from sub-Saharan Africa and Vietnam. These programmes aim at
meeting the priority training needs of senior and middle-level government officials
through a wide range of seminars, workshops, and training of trainers workshops. In
parallel to training activities, the programme also assists in strengthening local capacities
of governmental and academic institutions through distance learning training packages,
up-to-date publications as well as networking activities.
During 2006, the programme will focus on :
• Training government officials through short-duration regional seminars and

workshops on various aspects of debt, financial management and negotiation ;
• Developing On-line Training Courses (in parallel with its traditional regional
training) with a view to tapping a wider audience and reducing cost of training per
participant ;
• Strengthening existing ties with regional training centres and offering joint
courses with partners in the field ;
• Creating awareness among senior government officials of the importance of the
legal aspects in the borrowing process and of putting together a multidisciplinary
team for loan management and public administration;
• Providing in-depth training and skills development for accountants, economists,
financial experts and lawyers coming from government ministries and
departments involved in negotiation, financial management and public
administration ; and
• Developing and disseminating training packages and ‘best practice’ materials
directly related to the practicalities of legal aspects of debt and financial
management, with a view to strengthening existing human resources and
institutional capacities at the national level.
A description of UNITAR’s latest activities and training programmes in the area of debt
and financial management is available on its website at : www.unitar.org/dfm.
Street Address: Postal Address: Tel: +41 22 917 1234

Chemin des Anemones 11 -13 UNITAR Fax: +41 22 917 8047
CH-1219 Chatelaine Palais des Nations
GENEVA CH-1211 GENEVA 10 E-mail: DFMinfo@unitar.org
SWITZERLAND SWITZERLAND Website:
http//:www.unitar.org/dfm

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10

Training and Capacity Building Programmes in

Governance of Public Debt:

BEST PRACTICES Series No. 10

UNITAR Best Practices Series in External Debt Management

UNITAR Best Practices Series

Introductory Note ……………………………………………………..……… 4

Governance of Public Debt - International Experiences and Best

Selected References …………………………………………………… 21

Author’s Profile ……………………………………………………………….. 23

T his edition is the 10th. in a series of Best Practices publications

This document forms part of a broader effort by UNITAR’s Debt and

We hope that this document will be useful as well as challenging to its

GOVERNANCE OF PUBLIC DEBT -

2. Risk Management Framework for Public Debt

Efficient public debt management primarily aims at ensuring that

substantially deteriorate the fiscal position of the government, may put

Several OECD governments have accordingly set government debt

Although there is no unique solution to tackle various types of risk, general

Table 1: Structure of strategic portfolio benchmark in selected

Colombia 77:33 Foreign 85:15 3.5 10-15%

88:12* Domestic - 4 ± 0.5 10-15%

Finland 60:40 Foreign 85:15 3.6 -

Ireland 94:6 Domestic 67:33 3.7 Ceiling on all

Usually, governments are risk-averse in their sovereign debt management,

3. Institutional and legal set-up for public debt management

The institutional setting for public debt management in different countries,

Table 2: Institutional Location of Sovereign Debt Management

In terms of the degree of independence accorded to the debt office, the

International experience suggests that centralised debt offices in most

The main argument for entrusting sovereign debt management

Another factor, which prompted many governments to locate the debt

Table 3: Institutional Arrangement of Debt Offices and Annual

Table 4: Legal Framework for Debt Offices

legislation (e.g. Australia and Sweden). Very recently, Germany have

Table 5: Degree of Autonomy for Debt Offices

The issue of conflict in objectives between debt management and

Denmark is the only exception, where in 1991 the Danish government

For the fifth category of debt offices, public debt management

Management of External Debt

As regards external debt, most of the countries donot allow Subnational or

Table 6: Institutional Framework for Foreign Currency Debt

Nearly all of the autonomous debt management offices have adopted an

(i) The Front office

The front office is responsible for the efficient execution of all

(ii) The Middle office

The middle office (or risk management office) is responsible for

(iii) Back Office

(iv) Head Office

4. Governance: Legal Framework and Accountability

Sound governance practices are an integral part of sovereign debt

Legal arrangements are supported by delegation of appropriate authority

Objectives for government debt management are clearly specified,

The above arrangements are supplemented with establishment of a risk

Minister of Finance on an annual basis. For countries where the debt

The legislation also ensures that there is appropriate auditing of the

Irrespective of the institutional structure of the debt office, legal

5. World Bank Survey on Sovereign Debt Management

While organizing the Second Forum on Sovereign Debt Management in

Table 7: World Bank Survey on Second Sovereign Debt Management

6. Use of derivatives to hedge currency and interest

(c) No Middle Office Unit 43