Development Finance International

Debt strategy analysis enables governments (or individual government agencies) to:

• Plan and negotiate the best available new borrowing and financing options to fund economic development, growth and poverty reduction.
• Keep debt costs and risks as low and sustainable as possible in the short and long-term
• Negotiate maximum debt relief from creditors where this is needed.
• Assess potential risks arising from private sector debt and contingent liabilities.

The main inputs needed to conduct debt strategy analysis are:

• a comprehensive debt database, including projected stock and service payments for external and domestic debt and contingent liabilities of central government and other government agencies, as well as private sector debt.
• analysis of the risks and costs of debt, including its interest rates and other fees, its maturity, and its composition by currency and by interest rate type
• analysis of the options for mobilizing new external and domestic finance
• analysis of the options for restructuring existing external debt
• comprehensive macroeconomic projections, including a baseline scenario and optimistic or pessimistic scenarios for GDP, balance of payments and budget.
• forecasts of the unmet financing needs for national development and poverty reduction strategies.

These inputs are then combined and analysed using a variety of computerized tools to assess debt sustainability, risks and costs, resulting in recommendations for the design and implementation of a national debt strategy. Given that government priorities and international circumstances change frequently, strategies are best updated annually, preferably annexed to the budget to provoke transparent parliamentary discussion, and widely disseminated to inform potential development funders and civil society.

Latest work DFI carried out in this area:

15 – 29 September – MTDS mission to Mongolia

DFI joined a World Bank mission to Mongolia from September 15 to 29, 2011. The mission took place at the request of the Ministry of Finance, and focused on providing technical assistance in debt management strategy formulation. The mission shared the Bank-Fund framework for Medium-Term Debt Management Strategy (MTDS) development, and jointly with a government team, applied it to Mongolia. In the process, the team provided training on basic cost-risk analysis, data preparation, and preparation of a debt management strategy document.

11 – 15 July - MTDS mission to Cape Verde

DFI participated in a joint mission with the IMF to Cape Verde. The mission worked with the debt unit at the Ministry of Finance in order to finalize the Medium Term Debt Strategy (MTDS), which the Government wants to have ready by the fourth quarter of this year. The mission included presentations on how to finalize the different underlying assumption of the model and guidance on how to advance in the work.

June-August – Institutional Missions in the Franc Zone

In the context of the BCEAO/BEAC/BCC Capacity Building Programme under the HIPC CBP, five institutional missions were held in Senegal (30 May – 3 June), in Togo (6-10 June), in Burkina Faso (13-17 June), in Central African Republic (27 July – 1 August) and in Comoros (15-19 August). These missions focus on helping countries to introduce debt management procedures manuals adapting international best practices to national needs. Two other similar missions will be held soon in Chad and Congo.

13 – 16 September – Final HIPC CBP Mission to Ethiopia

The final mission of the HIPC Debt Strategy and Analysis Capacity-Building Programme (see http://www.hipc-cbp.org/) was conducted by DFI and a Zambian expert, fittingly to Ethiopia which made major strides in improving its debt strategy capacity under the CBP. The mission agreed with the Government on a debt strategy and analysis capacity-building programme for potential donor funding.

25 Jul- 5 August – Southern Sudan Debt Policy and Capacity Building Mission

DFI was funded by the Joint Donor Capacity Building Trust Fund for Southern Sudan to help the Government of the newly-independent Republic of Southern Sudan to examine policy options for post-independence development financing – especially borrowing on concessional terms – and the institutional and capacity-building measures required to establish a debt management unit well coordinated with wider economic policymaking. To read more on Southern Sudan’s debt, click here.

31 January -4 February – MTDS Francophone Medium Term Debt Strategy Workshop

DRI participated in this workshop organized in Dakar, Senegal by Pôle-Dette and sponsored by the World Bank and the IMF. Participants familiarized themselves with the MTDS framework and were shown how to analyze the costs and risks and how to use the simulation software to support the elaboration of the MTDS.