This report provides guidance on using the Analytical Tool of the Medium-Term Debt Management Strategy (MTDS). The MTDS framework consists of a methodology, published as the ‘Guidance Note for Developing a Medium-Term Debt Management Strategy’, and an associated analytical tool (AT) that can be used to assess the cost-risk trade-offs of alternative strategies to help identify the preferred strategy. The MTDS framework supported by the AT quantitative analysis helps to determine the financing strategy. The chosen debt management strategy sets out the financing composition path to meet the debt management objective(s). The profile of future interest payments and the amortizations of new debt are driven by the debt management strategy. The MTDS AT is based on annual cash flow. Although this assumption is enough for analyzing alternative debt management strategies, in some cases, particularly for countries that are heavily dependent on short-term securities with maturities of less than a year, it would be helpful to work with cash flows with higher frequency.

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This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.

The Revised Guidelines for Public Debt Management have been developed as part of a broader work program undertaken by the IMF and the World Bank to strengthen the international financial architecture, promote policies and practices that contribute to financial stability and transparency, and reduce countries external vulnerabilities.

High-quality public debt management plays a critical role in reducing the vulnerability of developing countries to financial crises. With sound risk and cash management, effective coordination with fiscal and monetary policy, good governance, and adequate institutional and staff capacity in place, governments can develop and implement effective medium-term debt management strategies. Managing Public Debt: From Diagnostics to Reform Implementation draws insights from a joint pilot program set up by the World Bank and International Monetary Fund to design relevant reform and capacity-building programs in twelve countries. The experiences of these geographically and economically diverse countries - Bulgaria, Colombia, Costa Rica, Croatia, Indonesia, Kenya, Lebanon, Nicaragua, Pakistan, Sri Lanka, Tunisia, and Zambia - illustrate the challenges and elements necessary to make progress in the area of public debt management. Managing Public Debt will serve government officials contemplating or in the process of reforming their practices, providers of technical assistance, and practitioners working on building capacity in public debt management. Because effective implementation of debt management strategies also requires a developed domestic government debt market, readers will also be interested in the companion volume, Developing the Domestic Government Debt Market, published by The World Bank in February 2007, based on the same joint pilot program.

The last time global sovereign debt reached the level seen today was at the end of the Second World War, and this shaped a generation of economic policymaking. International institutions were transformed, country policies were often draconian and distortive, and many crises ensued. By the early 1970s, when debt fell back to pre-war levels, the world was radically different. It is likely that changes of a similar magnitude -for better and for worse - will play out over coming decades. Sovereign Debt: A Guide for Economists and Practitioners is an attempt to build some structure around the issues of sovereign debt to help guide economists, practitioners and policymakers through this complicated, but not intractable, subject. Sovereign Debt brings together some of the world's leading researchers and specialists in sovereign debt to cover a range of sub-disciplines within this vast topic. It explores debt management with debt sustainability; debt reduction policies with crisis prevention policies; and the history with the conjuncture. It is a foundation text for all those interested in sovereign debt, with a particular focus real world examples and issues.

This report to the Boards of the International Monetary Fund (IMF) and the World Bank (WB) is the third in a series regarding the evolution of the Medium-Term Debt Management Strategy (MTDS) framework and the associated capacity building efforts. In 2007 the two Boards endorsed the development of the MTDS and ancillary tools, and mandated a program of technical assistance to help countries build capacity in this area. This endorsement and mandate reflect a recognition that sound debt management is critical both to macroeconomic stability and to the development and functioning of the financial sector. The IMF and the WB have collaborated to deliver a large volume of MTDS-based technical assistance to numerous, diverse countries, with a focus on middle- and lower-income countries. Donors have recognized the importance of this work and have been generous in their support. The assistance has taken many forms, including country visits by staff and experts, the delivery of regional training events, and the organization of forums. As documented here, modes of delivery have evolved, with greater emphasis on tailoring to country circumstances, ownership, and coordination within and across agencies in the recipient countries. The report and accompanying annexes describe how capacity building on MTDS has been adapted to keep abreast of country needs. An increasing number of countries have market access (such as through the issuance of Eurobonds or local currency bonds), and face the potential realization of contingent claims, which requires that the MTDS framework consider additional risk factors; more diverse scenarios and market risk metrics; and a wider range of strategies. In many countries, effective capacity building in MTDS was complemented by efforts to strengthen institutions and governance arrangements; debt recording; and government cash management. Linkages with the formulation of annual borrowing plans (ABP) and debt sustainability analysis (DSA) have been strengthened, but more work is needed. Providing a sustained stream of support, rather than one-off missions, often produced better results. Country ownership, often reflected in commitments under IMF- or WB-supported programs, has proven critical to the sustained enhancement of debt management capacity. The value and effectiveness of these capacity building efforts are documented in the report using qualitative and quantitative metrics. The responses from national authorities to a questionnaire on their experience with MTDS technical assistance and the evolution of various quantitative indicators suggest that there were benefits and these were generally sustained. In particular, the majority of countries that had received technical assistance indicated that it helped them to introduce a structured and coherent approach to designing a debt management strategy (DMS) and raise awareness of risks among senior officials and broader stakeholders. Countries also appreciated advice on institutional and governance reforms and integrating debt management into macroeconomic policy formulation and implementation. The observations are supported by case studies detailing how technical assistance was successfully tailored to country needs. It is shown that many recipient countries are now better able to integrate debt management into overall economic policy formulation and adapt their debt management strategies to changing countries’ circumstances. For some, risk exposure indicators have improved even as debt levels have increased. Looking forward, the report suggests that the MTDS framework and modes of delivery should continue to be updated and refined, while maintaining core functions. Some countries will need more sophisticated techniques both to analyze cost-risk trade-offs and to implement their chosen strategy. Others are still in the process of building a solid foundation for debt management. In addition to hands-on trainings, greater use of on-line learning may further enhance effectiveness and efficiency. Building institutional capacity in debt management is a long-term endeavor, often times requiring a more “programmatic” approach, and sustained client ownership. Such an approach would involve diagnosis followed by an actionable reform plan supported by tailored technical assistance. The Boards are asked for their views on priorities in a strategy for future development of capacity building in this area, and how best to ensure that improvements in debt management are sustained.