0 0 7 Programmatic Approach for Debt Management in LICs: - - PowerPoint PPT Presentation

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Programmatic Approach for Debt Management in LIC Programmatic Approach for Debt Management in LIC´s: s:

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g pp f g g pp f g Where do we stand and next steps Where do we stand and next steps Uriel Uriel Pérez Pérez Acuña Acuña General Director of Public Credit General Director of Public Credit

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Ministry of Finance and Public Credit of Nicaragua (MOF) Ministry of Finance and Public Credit of Nicaragua (MOF)

Octubre 2010

Outline Outline 0 0 7

– Debt Management Performance Assessment ( Debt Management Performance Assessment (DeMPA DeMPA) ) – Missions and objective Missions and objective

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– Comparison 2007 Comparison 2007 vs vs 2010 2010 – How do we take advantage of How do we take advantage of DeMPA DeMPA tool tool – Next Steps Next Steps

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p – Medium Debt Term Management Strategy (MTDS) Medium Debt Term Management Strategy (MTDS) Current Debt Strategy: General and Specific Current Debt Strategy: General and Specific – Current Debt Strategy: General and Specific Current Debt Strategy: General and Specific

• bjectives
• bjectives

– Advances in the last three years Advances in the last three years MTDS fi di MTDS fi di – MTDS findings MTDS findings – Actualization of Public Debt Strategy Actualization of Public Debt Strategy

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Debt Management

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Debt Management Performance Assessment (D MPA)

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(DeMPA)

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– Two missions have visited Nicaragua: First on May 2007 and Two missions have visited Nicaragua: First on May 2007 and

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g y g y the second on September 2010 the second on September 2010 – Objective: Evaluate Public Debt Management Objective: Evaluate Public Debt Management

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Objective: Evaluate Public Debt Management Objective: Evaluate Public Debt Management

• They evaluated us on 15 key performance indicators

They evaluated us on 15 key performance indicators

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– Check list Check list – Gave us a better idea of what we were doing (right or Gave us a better idea of what we were doing (right or wrong) wrong)

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Comparison: Comparison: DeMPA DeMPA 07 07 vs vs DeMPA DeMPA 10 10

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– The first evaluation was done under a pilot scheme The first evaluation was done under a pilot scheme R lt i 2007 t l diff t th i 2010 R lt i 2007 t l diff t th i 2010

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– Results in 2007 were extremely different than in 2010 Results in 2007 were extremely different than in 2010 – Some key indicators that were evaluated A, are now Some key indicators that were evaluated A, are now

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classified as D classified as D – Way to determine grade very harsh for the new Way to determine grade very harsh for the new DeMPA DeMPA, it a , it a y g y y g y , all or nothing system all or nothing system

• If one requirement is missing then the whole indicator is

If one requirement is missing then the whole indicator is If one requirement is missing then the whole indicator is If one requirement is missing then the whole indicator is a failure a failure

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Comparison: Comparison: DeMPA DeMPA 07 07 vs vs DeMPA DeMPA 10 10

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– Things Things to to consider consider: : a a low low grade grade (D (D for for example) example) indicates indicates that that the the particular particular dimension dimension does does not not meet meet the the minimum minimum requirement requirement

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– For For example example: : Our Our legal legal framework framework has has one

• ne item

item missing missing but but this this does does not not mean mean that that the the legal legal does does not not work work. .

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– There There is is a a big big difference difference between between rebuilding rebuilding and and starting starting over

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than making making some some key key modifications modifications – A A (D) (D) grade grade seems seems to to indicate indicate rebuilding rebuilding – Results Results could could difficult difficult the the elaboration elaboration of

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a proper proper reform reform plan plan if if findings findings are are not not clearly clearly explain explain in in the the document document sent sent to to the the authorities authorities

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How do we take advantage of How do we take advantage of DeMPA DeMPA tool: tool:

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• The evaluation gives you overall picture of your debt

The evaluation gives you overall picture of your debt management capacities management capacities

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• DeMPA

DeMPA allows you to identify positive and negative allows you to identify positive and negative indicators indicators With thi i d t t f l With thi i d t t f l

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– With this mind you can structure a reform plan With this mind you can structure a reform plan – Begin with the easy ones to fix and then start with the Begin with the easy ones to fix and then start with the hard ones ( These might be were third parties are hard ones ( These might be were third parties are involved, for example modifications of laws) involved, for example modifications of laws)

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Next Steps: Next Steps:

• The evaluation will be submitted to us by the end of

The evaluation will be submitted to us by the end of O t b i t l O t b i t l

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October, approximately. October, approximately.

• MHCP technical team will revise and later discuss with

MHCP technical team will revise and later discuss with

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the WB team the WB team

• Elaborate a reform Plan with the assistance of WB

Elaborate a reform Plan with the assistance of WB

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• Things that will be taken into account ASAP:

Things that will be taken into account ASAP:

– – DSA Analysis ( we are currently working on this topic with IMF local team) DSA Analysis ( we are currently working on this topic with IMF local team) y ( y g p ) y ( y g p ) – Actualization of Debt Strategy using MTDS tool Actualization of Debt Strategy using MTDS tool – – Suggestions to the WB: During the mission Suggestions to the WB: During the mission´ ´s, the teams could work closer together. s, the teams could work closer together. Currently, WB obtains information and afterwards writes report. This does not allow Currently, WB obtains information and afterwards writes report. This does not allow y, p y, p the Government to find additional information that could change the Grade, this could the Government to find additional information that could change the Grade, this could eliminate the element of surprise eliminate the element of surprise.

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Medium Term Debt Strategy

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Medium Term Debt Strategy (MTDS)

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Our Our National National Public Public Debt Debt Strategy Strategy 2008 2008-

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2011 was was approved approved by by the the President President of

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the Republic Republic in in 2008 2008

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pp pp y p

• General Objective of the Strategy:

General Objective of the Strategy:

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– Guarantee Central Government Financial needs Guarantee Central Government Financial needs according to our Economic Program according to our Economic Program

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– Reduce cost with prudent level of risk Reduce cost with prudent level of risk – The strategy will initiate the process to take our level of debt The strategy will initiate the process to take our level of debt with respect to GDP towards sustainability (Nominal/GDP with respect to GDP towards sustainability (Nominal/GDP between 40 and 50 percent) between 40 and 50 percent) between 40 and 50 percent) between 40 and 50 percent)

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Specific Objectives: Public Debt Management Strategy Specific Objectives: Public Debt Management Strategy

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• External Debt Objective:

External Debt Objective:

– Maximize Maximize concessionality concessionality and conclude HIPC initiative and conclude HIPC initiative

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• Internal Debt Objective:

Internal Debt Objective:

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– Develop the Internal Debt Market Develop the Internal Debt Market

• Though the issuance of standardized government

Though the issuance of standardized government instruments instruments

• This will eventually create a new option for funding the

This will eventually create a new option for funding the y g y g Central Government deficit (current situation) Central Government deficit (current situation)

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Advances in the implementation of our strategy: Advances in the implementation of our strategy:

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• Auction process modernized (electronic and dematerialize instruments)

Auction process modernized (electronic and dematerialize instruments)

• Instruments standardized ( 1 3 & 5 year paper)

Instruments standardized ( 1 3 & 5 year paper)

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• Instruments standardized ( 1, 3, & 5 year paper)

Instruments standardized ( 1, 3, & 5 year paper)

• This has allowed us to met our year needs: US$ 45.0 in 2008,

This has allowed us to met our year needs: US$ 45.0 in 2008, US$118.4 in 2009 and US$ 121.0 in 2010. US$118.4 in 2009 and US$ 121.0 in 2010.

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US$118.4 in 2009 and US$ 121.0 in 2010. US$118.4 in 2009 and US$ 121.0 in 2010.

• Interest are currently @ 6.00 percent (YTM) for three year paper,

Interest are currently @ 6.00 percent (YTM) for three year paper, initially it was 11.53 percent initially it was 11.53 percent y p y p

• Communication with market has improved, we will continue to

Communication with market has improved, we will continue to strengthen this area. strengthen this area.

• Confident has improved, we have maturities that go to 2013.

Confident has improved, we have maturities that go to 2013.

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Nicaragua has advance substantially in the last three Nicaragua has advance substantially in the last three years in the implementation of its strategy: years in the implementation of its strategy:

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years in the implementation of its strategy: years in the implementation of its strategy:

• But we do understand

But we do understand, that we need to incorporate a risk/cost , that we need to incorporate a risk/cost analysis in our strategy analysis in our strategy

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analysis in our strategy analysis in our strategy

• That’s were the MTDS tool

That’s were the MTDS tool comes into play: in May 2010 the comes into play: in May 2010 the MHCP i d d i i f th WB d IMF l t d MHCP i d d i i f th WB d IMF l t d

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MHCP received a second mission from the WB and IMF related MHCP received a second mission from the WB and IMF related to the implementation of the tool to the implementation of the tool

• Results

Results: 4 strategies were designed in order to measure the : 4 strategies were designed in order to measure the risk/cost associated with each one risk/cost associated with each one

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MTDS exercise findings: MTDS exercise findings:

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• We found,

We found, scenarios can be very realistic. scenarios can be very realistic. Th t l ll Th t l ll t t t f diff t fi i t t t f diff t fi i

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• The tool allows

The tool allows you to create up to four different financing you to create up to four different financing schemes schemes

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• Our base scenario

Our base scenario tried to stay consistent with our economic tried to stay consistent with our economic program program

• In summary,

In summary, the tool permits you to evaluate different financing the tool permits you to evaluate different financing possibilities with the risk and cost associated to each one possibilities with the risk and cost associated to each one

• It gives the decision

It gives the decision makers 4 alternatives to choose from makers 4 alternatives to choose from

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Actualization of Public Debt Strategy using the MTDS in Actualization of Public Debt Strategy using the MTDS in the year 2011 the year 2011

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the year 2011 the year 2011

• Based on our plan, the actualization of our strategy should take

Based on our plan, the actualization of our strategy should take place in the first semester of 2011 place in the first semester of 2011

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place in the first semester of 2011 place in the first semester of 2011

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• The strategy will have a similar structure as the one approved

The strategy will have a similar structure as the one approved but it will include a chapter that will evaluate different scenarios but it will include a chapter that will evaluate different scenarios using MTDS tool (Risk/Cost) using MTDS tool (Risk/Cost)

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Actualization of Public Debt Strategy using the MTDS in Actualization of Public Debt Strategy using the MTDS in the year 2011 the year 2011

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the year 2011 the year 2011

• Some Key issues that need to be guaranteed:

Some Key issues that need to be guaranteed:

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– Base scenario should be consistent with Economic Program Base scenario should be consistent with Economic Program (internal debt issuance and external disbursements) (internal debt issuance and external disbursements)

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– Scenarios should be consistent with the medium term Scenarios should be consistent with the medium term Budget Budget – Scenarios must be obtainable Scenarios must be obtainable

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Actualization of Public Debt Strategy: Work Plan 2011 Actualization of Public Debt Strategy: Work Plan 2011

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– The The Technical Technical Debt Debt Committee Committee (TDC), (TDC), through through the the Ministry Ministry

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• f Finance

Finance and and Public Public Credit Credit will will take take lead lead in in this this role role

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– Public Public Credit Credit Office Office will will coordinate coordinate with with other

• ther members

members of

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th th TDC TDC

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the the TDC TDC – MTDS MTDS Tool Tool: : Even Even though though we we feel feel like like we we have have a a good good understanding understanding of

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the tool, tool, there there are are still still some some unclear unclear issues issues that that need need to to be be discuss discuss

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Actualization of Public Debt Strategy: Work Plan 2011 Actualization of Public Debt Strategy: Work Plan 2011

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– Tool Tool: : Sometimes Sometimes not not very very user user friendly, friendly, difficult difficult to to manipulate manipulate

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– We We will will advance advance in in the the scenarios scenarios and and then then incorporate incorporate and and th th

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run run the the program program – It It might might be be important important for for the the WB WB to to join join us us in in this this effort effort in in

• rder
• rder to

to properly properly incorporate incorporate a a risk/cost risk/cost analysis analysis of

• f our
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scenarios scenarios

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Thank Thank you you!! !!

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Thank Thank you you!! !!

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US$ millones

Concepto I Semestre 2010

Saldo de la Deuda Pública Total

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Concepto I Semestre 2010 Deuda Total 5,031.7 Gobierno Central 2,651.0 R t d l S t P bli N fi i 68 7

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Resto del Sector Publico No financiero 68.7 Banco Central 2,288.0 Resto del Sector Público Financiero 25.0

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Deuda Externa 3,659.6 Gobierno Central 1,748.5 Resto del Sector Publico No financiero 68.7 Banco Central 1,817.4 Resto del Sector Público Financiero 25.0 Deuda Interna con el Sector Privado 1,373.0

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Gobierno Central 902.5 Banco Central 470.5