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An Introduction to Subnational DeMPA

CEMLA – MEXICO CITY MARCH 2013

1.Methodology2.Links with Lifecycle of a loan3.Implementation4.Preliminary Results

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WhatistheSubnational DebtManagementPerformanceAssessment(DeMPA)?

Subnational DeMPA is a methodology for assessing a subnational entity’s debt management performance through a comprehensive set of performance indicators spanning the full range of government debt management functions

Based on methodology of sovereign DeMPA tool. It is firmly grounded in the Public Expenditure and Financial Accountability (PEFA) methodology and offers a “drill down” on debt management

The tools are based on the principles of sound debt management as outlined in the World Bank-IMF, Guidelines of Public Debt Management, 2001.

Covers all the Subnational Government DeM and connected activities Exception: DSA and debt reporting include total non-financial public sector debt

and loan guarantees

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Scoring Methodology and Coverage

Scoring: Quantifiable Scores (from A to D)

Meet minimum requirement = Score C

Absence of minimum = Score D

Sound practice = Score A (B intermediate for more granularity)

Difference between NA and NR• Not rated – if there is insufficient it is difficult or impossible to

assess information• No Applicable - if the function/process is not in place, e.g.,

derivatives

Coverage: Subnational Government debt management and connected activities

Scoring is useful but the most important result is understanding the rationale for the evaluation

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Subnational DeMPA(similartosovereigntool)

Objective

• Assesssubnationalentity’spublicdebtmanagementperformancecapacity

• Monitorperformanceovertime

• Enabledesignofreformprogram

Methodologycoverage

• 14DebtPerformanceIndicators(DPI)

• 33Dimensions

• CoverssixcoreDeMfunctions

• ComplementedbyaGuidethatprovidesbackgroundmaterial,rationale,indicativequestions

Implementation

• Assessmentmissions

• PerformanceReport

• Noconditionality

• Reportisreleasedattheauthorities’discretion

• Demand‐driven

Key Differences Many indicators of the sovereign DeMPA can be applied to the subnational

DeMPA, but there are significant differences between the two.

Subnational DeMPA is customized to pick up these differences• Must take account of the specific inter-governmental framework of a

country (fiscal and procedural rules to incur debt)• Subnational DM in most countries have little implication for monetary

policies. – Thus indicators assessing coordination of DM and monetary management are less relevant in

assessing subnatioanl debt performance.– Usually central banks do not use subnational securities for monetary policy/ open market operations.

• Third, subnationals usually do not have debt market development as an objective.

• SNGs rely more on loans from (commercial) banks to meet financing requirements

• Access to domestic capital market by issuing debt securities is not as frequent as in sovereign.

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Features of SN-DeMPA

•SN-DeMPA Indicators» Standardized metric – help to measure SN -DeM performance» Highlights strengths and weaknesses» Indicators are outcome-based not input-based (except DPI 12,

dimension 2 on staff capacity and human resource management)

» Based on “sound practice”» Neutral regarding institutional arrangements for DM in the SNG

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14 Debt Management Performance Indicators (DPIs)

Governance and Strategy Development• DPI-1 Legal Framework• DPI-2 Managerial Structure• DPI-3 Debt Management Strategy• DPI-4 Evaluation of Debt Management Operations • DPI-5 Audit

Coordination with Macroeconomic Policies• DPI-6 Coordination with Fiscal and Budgetary Policy

Borrowing and Related Financing Activities• DPI-7 Borrowing Planning• DPI-8 Borrowings• DPI-9 Loan Guarantees, On-lending and Derivatives

Cash Flow Forecasting and Cash Balance Management• DPI-10 Cash Flow Forecasting and Cash Balance Management

Operational Risk Management• DPI-11 Debt Administration and Data Security• DPI-12 Segregation of Duties, Staff capacity and Business Continuity

Debt and Loan Guarantee Records and Reporting • DPI-13 Debt and Loan Guarantee Records• DPI-14 Debt and Loan Guarantee Reporting

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• Direct Links – with the recording and management of cash

balances, debt and guarantees (PI-17)• Strong links

– found in PEFA indicators on audit and fiscal planning with the DeMPA indicators on audit and coordination with macroeconomic policies

• DifferencewithPEFA– MeetingallcriteriafortheminimumrequirementsisimportantforeffectiveDeM

– Noaggregationacrossindicatorsandnoweightsassignedtoscores

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Links with PEFA

SN-DeMPA Indicators link with Lifecycle of a Loan

• Lifecycle is effectively the same for each of the following:– Multilateral, bilateral, and commercial loans– Treasury bills and bonds– International, euro, and global bonds– Other forms of borrowing– Investment of cash balances– Derivative transactions

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Life cycle Stages

• We will examine the lifecycle in four stages:– Planning– Contracting– Servicing– Reporting

• We will show how each DPI fits into these four stages

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PlanningThe planning process is needed to ensure that the following are in place for the government to borrow and transact:

1. Legislation (primary and secondary)

2. Managerial structure and policy setting3. SN government debt management strategy

4. Borrowing Planning

5. Co-ordination mechanisms with fiscal and budgetary policy)

DPI 1

DPI 2

DPI 3

DPI 6

DPI 7

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Planning

Contracting

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Contracting

Negotiating and contracting should be undertaken within authorities and limits, and in accordance with the debt strategy, covering:

1. Domestic borrowing

2. External borrowing

3. Loan guarantees4. On-lending5. Derivatives

DPI 8

DPI 8

DPI 9

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Planning

Contracting

Servicing

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Servicing

Systems and procedures are needed for recording, monitoring, settling, and accounting for all debt and debt-related transactions in a secure and controlled environment:

1. Cashflow forecasting and cash balance management

2. Debt administration and data security

3. Capacity and resources – segregation of duties, staff capacity, and business continuity

4. Debt and loan guarantee recording

DPI 10

DPI 11

DPI 2

DPI 13

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Planning

Contracting

Servicing

Reporting

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Reporting

Reporting ensures transparency and accountability for debt management policy and operations:

1. Evaluation of debt management operations

2. Internal and external audit

3. Reporting

DPI 4

DPI 5

DPI 14

10

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Planning

Contracting

Servicing

Reporting

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Planning

Contracting

Servicing

Reporting

Middle Office

Back Office Front Office

Back Office

Borrowing and Related Financing Activities

(DPI 8, and 9)

Co-ordination with Fiscal and Budgetary Policies

(DPI 6)

Cash-flowForecasting and Cash Balance Management

(DPI 10)

Operational Risk Management

(DPI 11 and 12)

Governance and Accountability

(DPI 1, 2, 4, and 5)

Debt Recordsand Reporting

(DPI 13 and 14)

Strategy Development(DPI 3)

Borrowing Planning (DPI 7)

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SN-DeMPA: Implementation Process

• Assessment– Evaluation of existing and available evidence– Assessments will be in the SN entity, based on both

qualitative and quantitative data– Meetings with stakeholders, including on the ground

donors, TA providers

• Performance Report: – Evaluates SN debt management performance based on

indicators (around 30-40 pages)– Assessment developed and finalized with SNG

authorities– Highlights strengths and areas for improving

performance in debt management

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DeMPA implementation: over 70 Missions

Bold Font: DMF financed otherwise funded by Bank Budget. * In collaboration with DMF Implementing Partner(s).

FY08 (0)

Burkina Faso*

CAR*

Ghana

Mali*

Mozambique

Togo

Sao Tome & Principe

Swaziland

Zambia

Bangladesh

Honduras*

Moldova

Mongolia

FY07 (0) - Pilots

Malawi

Albania

The Gambia

Nicaragua

Guyana

FY09 (2)

Cote d’Ivoire*

Antigua & Barbuda

Grenada

Congo, DR*

Burundi*

Uganda*

St. Kitts & Nevis

Solomon Islands*

Cape Verde

Cameroon*

Congo, Republic of

Guinea*

Nigeria*

Rwanda*

FY10 (15)

Sierra Leone*

Senegal*

Guinea Bissau*

Liberia*

Malawi*(2nd

DEMPA)

Cambodia

Gambia (2nd

DEMPA)

Samoa*

Nepal*

Maldives*

Pakistan*

Djibouti

Tanzania*

Mauritania*

Benin*

FY11(12)

Kazakhstan

Togo*(2nd DeMPA)

Yemen

Papua New Guinea

Nicaragua (2nd)

Bhutan*

Mongolia(2nd )

Albania (2nd)

Zambia (2nd )*

Comoros*

Burkina Faso (2nd)*

Swaziland (2nd )

Afghanistan

Rwanda (2nd )*

Tajikistan*

Belarus

Lagos *Rio De Janeiro

FY12(10)

Central African Republic (2Nd)*

Zimbabwe *

Vietnam *

Mali*

Sudan*

Namibia*

Nigeria 2nd *

Ondo*

Niger*

Burundi*

Jakarta

Gabon

Ghana (2nd)*

FY13 (2)

Bolivia*

Lima, Peru*

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DeMPAs completed to date in over 60 developing countries

FY07 – pilot (5)•The Gambia•Malawi •Albania•Guyana•Nicaragua

FY08 (13)•Burkina Faso (RO)•CAR (RO)•Ghana•Mali (RO)•Mozambique•Togo•Sao Tome Principe•Swaziland (RO)•Zambia•Bangladesh•Honduras (RO)•Moldova•Mongolia

FY09 (14)•Burundi (RO)•Uganda (RO)•St Kitts & Nevis (ECCB)•Solomon Islands (RO)•Cape Verde•Cameroon (RO)•Congo, Brazzaville (RO)•Guinea (RO)•Nigeria (RO)•Rwanda (RO)•Congo, DRC (RO)•Cote d’Ivoire (RO)•Grenada•Antigua

FY10 (15)•Benin•Mauritania•Tanzania•Djibouti•Pakistan•Nepal (RO)•Samoa (RO)•The Gambia (RO)

•Cambodia (RO)•Maldives (RO)•Malawi (2nd)•Liberia (RO)•Guinea-Bissau (RO)

•Senegal (RO)•Sierra Leone (RO)

FY11 (18)•Papua New Guinea•Albania, 2nd•Yemen (RO)•Nicaragua, 2nd(RO)•Togo, 2nd(RO)•Kazakhstan•Mongolia, 2nd(RO)•Bhutan (RO)•Comoros (RO)•Zambia 2nd(RO)•Lagos sub-national•Burkina Faso, 2nd(RO)

•Swaziland 2nd•Rio de Janeiro sub-national•Tajikistan (RO)•Belarus•Sao, Tome & Principe 2nd(RO)•Afghanistan (RO)

FY12 (10) Central African Republic (RO) (2nd)Zimbabwe (RO)Vietnam (RO)Mali 2nd (RO)Sudan (RO)Nigeria (ROOndo (RO)NamibiaNiger (RO)Burundi (2nd) (RO)

Pipeline•Ghana (RO)•Bauchi (RO)•Jakarta•Gabon•EQG•Kosovo•Kenya•Lima

RO = Regional Organizations. Missions undertaken in collaboration with regional TA providers – Pole Dette, MEFMI, WAIFEM, and CEMLA and international TA providers UNCTAD (DMFAS), Comsec and DRI

Several rounds of DeMPA trainings held

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Preliminary Results

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Preliminary Results Based on Finalized DeMPA Reports (57)

02468

10121416182022242628303234363840424446485052

Legal framework

Managerial Structure

Debt Management Strategy

Evaluation of Debt ManagementOperations

Audit

Coordination with Fiscal Policy

Coordination with Monetary Policy

Domestic BorrowingExternal Borrowing

Loan Guarantees, On lending Derivatives

Cash Flow Forecasting and Cash BalanceManagement

Debt Administration and Data Security

Segregation of Duties, Staff Capacity andBCP

Debt Records

Debt Reporting

C or Higher Score D

Preliminary Results Based on Finalized SN-DeMPAs (5)

0

1

2

3

4

5Legal framework

Managerial Structure

Debt ManagementStrategy

Evaluation of DebtManagementOperations

Audit

Coordination withFiscal and Budgetary

Policy

Borrowing Planning

Borrowing

Loan Guarantees, Onlending Derivatives

Cash Flow Forecastingand Cash Balance

Management

Debt Administrationand Data Security

Segregation of Duties,Staff Capacity and BCP

Debt Records

Debt Reporting

C or Higher Score D

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Results: A disaggregated view

Preliminary Results Based on 57 finalized DeMPA Reports

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40

20

0

20

40

60

DPI

-1-1

DPI

-2-1

DPI

-2-2

DPI

-3-1

DPI

-3-2

DPI

-4-1

DPI

-5-1

DPI

-5-2

DPI

-6-1

DPI

-6-2

DPI

-7-1

DPI

-7-2

DPI

-7-3

DPI

-8-1

DPI

-8-2

DPI

-9-1

DPI

-9-2

DPI

-9-3

DPI

-10-

1

DPI

-10-

2

DPI

-10-

3

DPI

-11-

1

DPI

-11-

2

DPI

-12-

1

DPI

-12-

2

DPI

-12-

3

DPI

-12-

4

DPI

-13-

1

DPI

-13-

2

DPI

-13-

3

DPI

-14-

1

DPI

-14-

2

DPI

-15-

1

DPI

-15-

2

DPI

-15-

3

Scores on 35 Dimensions

No. of As No. of Bs No. of Cs No. of Ds

Preliminary Results (2)

• Across the six core functions

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Click Click Click Click Click

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Preliminary Results (3)• Governance and Strategy Development

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Preliminary Results (4)

• Coordination with Fiscal and Monetary Policies

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Preliminary Results (5)• Borrowing and Related Activities

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Preliminary Results (6)• Operational Risk Management

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Preliminary Results (7)• Debt Records and Reporting

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Findings from some second DeMPAs indicate improvements

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DeMPA Performance Indicators

Country

Improvement

1. Legal Framework A Minister of Finance only minister to sign loan docs2. Managerial Structure A Created National Public Debt Committee

C Improved managerial structure B Improved back office operational framework

3. Debt Management Strategy F Improved strategy document, still needs risk factors. G Preparation and regular update of a debt management

strategy A Debt strategy discussed with Central Bank, approved by

Parliament E Creation of annual strategy document

4. Evaluation of Debt Management Operations

F Evaluation of Public Indebtedness Policy and Annual Borrowing Plan

C Evaluation of debt management operations5. Audit D Internal Audit Department established

A External inspection office started audit of debt office6. Fiscal Policy A Debt service on all loans included in budget, but

imprecise numbers 7. Monetary Policy G Improved coordination between debt management and

monetary policy 8. Domestic borrowing A Annual T bill issuance calendar with indicative amounts,

updated quarterly 9. External borrowing A Legal advice involved earlier in negotiations 10. Guarantees, on-lending, derivatives

A Isolated cases where Nat. Public Debt Comm. rejected requests for guarantees

11. Cash Flow Forecasting G Forecasting has improved12. Debt admin and data security

D IT Dept. now performs daily back-up or database, kept off site

13. Segregation of duties G Some improvementB Improved staffing arrangements

14. Debt Records A Improved data on domestic debt, including at Central Bank

E Improved debt registry system 15. Debt reporting A Better data exchange within government, IMF. Debt

Statistical Bulletin produced E Periodic production of a Debt Statistical Bulletin

 

Country names are hidden

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Lead-lag pointers

Year 1 Year 3

DPI 1 Legal framework √ √DPI 2 Managerial Structure √ √

DPI 3 Debt Management Strategy √ X

DPI 4 Evaluation of Debt Management Operations √ √DPI 5 Audit √ √DPI 6 Coordination with Fiscal Policy √ X

DPI 7 Coordination with Monetary Policy √ √

DPI 8 Domestic Borrowing √ √

DPI 9 External Borrowing X X

DPI 10 Loan Guarantees, Onlending Derivatives √ √

DPI 11 Cash Flow Forecasting, Cash Balance Mgt. √ √DPI 12 Debt Administration and Data Security √ √DPI 13 Segregation of Duties, Staff Capacity and BCP X X

DPI 14 Debt Records X X

DPI 15 Debt Reporting X X

• Deficiencies today may impact future performance in other DPIs35

TechnicalAssistanceRoadMap

DeMPA

Capacitybuilding:DSA

Hubtraining Withincountrytraining

Legalandotheradvice:

Domesticmarketdevelopment

CapacityBuilding:

ReformPlan

ReformPlanTAmission

Follow‐upReformPlanTAmission

Capacitybuilding:

PublicDebtManagementStrategy

Hubtraining MTDSmission

Follow‐upMTDStraining

mission

Possiblefollow‐ups

Training/TAexamples