IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Assessment of a range of alternative strategies

Joint Vienna Institute, Vienna, Austria

February 23 – 27, 2015

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Illustrative Strategies

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Evaluating Strategies: cost and risk trade-off

• Step1: Simulate range of candidate viable and realistic strategies under specific baseline

• Step 2: Have already defined the set of alternative strategies and alternative scenarios – the stress tests

• Step 3: Consider outcome under alternative conditions / stress test

• Step 4: Compare the outcome under baseline and stress test for each strategy

• Step 5: Rank performance and determine the preferred strategy

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Assessing performance

• Need to be critical in the assessment– Consider ex ante the possible ranking / effects of stress

scenarios…– Which strategy is likely to be least costly?

– What risk exposures are likely to increase with each strategy?

– Why do expectations differ from outcomes?

• Need to determine in advance indicators and cost/risk levels

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Recall Cost and Risk Indicators

• Cost?

– Interest

– Interest / Revenues or Interest / GDP

– Interest + Adjusted Principal

– Debt / GDP

Which measures are relevant for the specific economy?

• Risk?

What is the reasonable level of risk?

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Measurement of risk

Baseline Scenario

Risk Scenario 1

Time

Cost

Risk1,X

Cost1,X Costbaseline

Time

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Borrowing Strategies

S1 S2 S3 S4

% of Total % of Total % of Total % of Total

External Domestic External Domestic External Domestic External Domestic

Types of Debt All IDA All T-bills All Eurobonds All Domestic Bonds

External 100 100

Multilateral Concessional

100

Eurobonds 100

Domestic 100 100

Domestic < 1yr 100

Domestic > =10yr 100

7

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

S1: All IDA S2: All T-billsS3: All Eurobonds S4: All 10Yr -20Yr T-Bond

Outcomes: Changes in debt outstanding

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Outcomes: Redemption profiles

S1: All IDAS2: All T-billsS3: All EurobondsS4: All 10Yr -20Yr T-Bonds

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Outcomes: Debt/GDP

S1: All IDA S2: All T-billsS3: All Eurobonds S4: All 10Yr -20 Yr T-Bonds

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Outcomes: Interest/GDP

S1: All IDA S2: All T-billsS3: All Eurobonds S4: All 10Yr -20 Yr T-Bonds

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Outcomes: PV Debt/GDP

S1: All IDA S2: All T-billsS3: All Eurobonds S4: All 10Yr -20 Yr T-Bonds

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Outcomes: PV Debt / GDP

S1: All IDA S2: All T-billsS3: All Eurobond S4: All 10Yr T-Bond

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Evolution of outcomes through time

S1: All IDAS2: All T-billsS3: All EurobondsS4: All 10Yr -20Yr T-Bonds

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Other cost risk indicators

Can we think of other relevant indicators?

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Resolving a conflict between indicators?

• Consider wider set of indicators?

• Consider more closely how well the strategies meet other objectives

• Consider how they perform relative to identified priorities for mitigate macro vulnerabilities

• At the end of the day … need to use judgment

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Implied Issuance Patterns

Is this viable?

How realistic are the strategies being analyzed?

What do these decisions imply for the rest of the economy?

Is this compatible with the monetary policy stance?

Total Gross Financing in USD

2011 2012 2013 2014 2015

S1 All IDA 16,241 8,036 8,407 5,228 4,359

S2 All T-bills 16,241 24,177 32,604 38,434 43,650

S3 Eurobonds 16,241 9,076 10,089 7,685 7,445

S4 Domestic bonds (>=10yr)

16,241 9,770 11,069 8,941 8,886

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Drawing conclusions

• Quantitative tools help inform decision-making by allowing producing a ranking of candidate strategies on a consistent basis

• However:

– The quality of outputs is only as good as the quality of the inputs

– Decisions need to be made in line with the pre-set objectives and take constrains into account

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Questions?