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Development Account Projects

Strengthening capacity for effective asset and liability management in national debt management offices

Background:

The traditional role of a country's debt management office is to minimize funding costs while maintaining a debt structure that limits the possibility of a debt crisis. Many developing countries still face serious difficulties in this area.

A given level of debt can generate different levels of vulnerabilities depending on how the debt structure matches a country's assets. Debt management offices in developed countries are moving from an approach based on managing the country's liabilities to an asset liability management approach. Developing countries are also moving in this direction; however, their national capacity in this area is weak.

In moving to an asset liability management approach, countries need to be able to collect data on their main financial and non-financial assets and liabilities (i.e., all types of debt: external public debt and domestic debt1) and build models for analysing and reducing mismatches under different types of shocks.

Improving capacity to effectively manage its debt will contribute to reducing the risks of a debt crisis (consistent with target 3 of Millennium Development Goal 8) and also liberate fiscal resources that can be used for poverty reduction activities and social expenditure in health and education (Millennium Development Goals 1, 4 and 5). The two geographic regions targeted by the project are Africa and Latin America and the Caribbean, in which UNCTAD has a significant presence through the debt management financial and analysis system programme.

The project builds upon the considerable experience of UNCTAD in assisting debt management offices in both their data collection and reporting role (the programme is active in 100 institutions in 57 countries, including the beneficiary countries of the project) and risk analysis capacities. It will also build upon the strategic partnerships between UNCTAD and other bodies, including the World Bank, the International Monetary Fund and the Macroeconomic and Financial Management Institute of Eastern and Southern Africa.

Objective:

To strengthen the capacity of developing countries to manage their public debt through integrated asset and liability management.

Expected accomplishments:

  • Increased ability to collect and report data on the level and structure of public debt (both external and domestic) and on external private debt
  • Evaluation of the resources required for collecting data on the country's public assets and development of a preliminary framework for collecting such data
  • Decision on whether the country should move to an asset liability management framework and, if this is the case, preparation of a detailed workplan for implementing such a framework

Implementation status:

The overall objective of the project is to strengthen the institutional capacity at the national level in six developing countries from the Africa and Latin America and Caribbean regions to manage their public debt and developing the capacity to move to a debt management approach based on an integrated Asset and Liability Management (ALM) framework.

In 2012 the project has been implemented, taking into account country-specific needs and preferences, through various activities aimed to assist countries in developing an ALM framework. Project activities have been mainly delivered through country-level workshops to the DMOs of Ethiopia and Uganda and through technical assistance to the DMO of Argentina in mapping the assets and liabilities of the public sector.  A partnership between Argentina and Brazil was also established with the aim to assist Argentina in the design of an ALM framework.  Plans prepared for the first quarter of 2013 include a country level workshop to be held in Bolivia and the provision of policy advice to the Government of Zambia concerning the evaluation and management of contingent liabilities of the public sector.

In 2012 the project had the following impact.  The DMO of Argentina completed a detailed Report on the assets and liabilities of the public sector. The Report is of high quality and shows that the government is ready to move from debt management to an ALM framework. The DMOs of Ethiopia and Uganda benefitted from technical assistance provided through two country-level workshops on ALM and domestic debt market development. In Uganda a policy-recommendation Report was drafted at the end of the workshop that proposes a "Plan of Action to Reform Domestic Debt Management and Develop a Domestic Market". In Ethiopia, DMO officials formulated a first draft of the ALM balance sheet of the public sector and expressed their willingness to move to a debt management approach based on an integrated ALM framework.  A fourth country, Zambia, is considering moving gradually to such a framework. As a first step in that direction, the Government has requested technical assistance to evaluate the magnitude and risks of explicit and implicit contingent liabilities. All in all, project activities in 2012 were very successful in increasing target country awareness of the ALM framework and generated a demand for further training and technical assistance.