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The UK Debt Management Office – Borrowing on behalf of Government

Mike Suffield – UK National Audit Office

INTOSAI Public Debt Committee MeetingLisbon, Portugal21-22 June 2007

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The UK Debt Management Office

• established on 1 April 1998.

• an executive agency of the Treasury.

• borrows funds on behalf of government through the issue of gilts and Treasury bills

• increased activity in recent years caused by government spending and ‘roll-over’ of existing government debt.

• our review examined the DMO’s debt management activities and reporting arrangements.

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Aims of the review

• to provide briefing for the Treasury Sub-Committee

• to set out our conclusions and make recommendations

• to deepen our understanding of debt management arrangements and practice

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Approach to the review

The main elements of our work were:

• a survey of overseas debt managers

• a survey of gilt (government bond) market participants

• meetings with DMO and Treasury staff

• work-shadowing within the DMO; and

• attendance at key events

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Briefing the Treasury Sub-Committee

• Parliamentary Select Committees scrutinise the activities of government bodies (hold hearings with senior staff)

• the UK DMO falls within the remit of the Treasury Sub-Committee

• Committee members are not debt management experts

• NAO’s role was to provide members with high quality information to support their questioning of DMO management

• enhanced accountability

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Conclusions & Recommendations (1)

• the Treasury has overall responsibility for central government debt management. The DMO operates according to an annual remit agreed with the Treasury

• the DMO’s activities are guided by the Government’s debt management strategy (predictability and transparency as the most effective way of minimising government borrowing costs)

• no recognised way of quantifying whether predictability and transparency is the best approach

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Conclusions & Recommendations (2)

• the UK’s primary debt management policy objective is:

“To minimise, over the long term, the costs of meeting the Government’s financing needs, taking into account risk, whilst ensuring that debt management policy is consistent with the aims of monetary policy”

• the objective is similar to those used by the overseas debt managers in our survey and consistent with IMF/World Bank guidance

• measuring performance against the debt management objective is not straightforward (no ‘magic number’)

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Conclusions & Recommendations (3)

• The Treasury has stated that the debt management objective is achieved by:

pursuing an open, transparent and predictable gilts issuance policy

managing the maturity and nature of the Government’s borrowing

selling gilts that achieve a benchmark premium

developing a liquid and efficient gilts market

• our review indicated that the DMO’s activities are consistent with the achievement of the above criteria

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Conclusions & Recommendations (4)

• no clear insight into the DMO’s contribution towards the primary debt management objective

• the ‘Strategic Debt Analysis Model’ may enhance accountability in the future

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Conclusions & Recommendations (5)

• the DMO and the Treasury have agreed to take forward some specific actions to enhance performance reporting:

encompass key initiatives & developments within performance reporting

minimise the number of documents involved

provide details of where performance information can be found

Treasury to set out clearly what it requires from the DMO when conducting its debt management activities

revisit the factors identified as contributing to the achievement of the primary debt management objective

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Deepening our understanding

• work focussed previously on the audit of financial statements

• better understanding of debt management and the issues facing the UK DMO and the Treasury

• increased credibility with the DMO and the Treasury

• closer ties with the Treasury Sub-Committee

• good platform for future work

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Questions?

• have other PDC members completed similar reviews? (what were the outcomes?)

• are the issues raised in our review of relevance for PDC Members?

• how regularly do others conduct such reviews?

• what would be useful areas for further scrutiny?