Posted by Danielle Serebro[1]
Public debt transparency depends on three key conditions: (i) effective recording, (ii) an extensive reporting function, and (iii) a willingness to share debt-related information (UNCTAD, 2018). Anomalous cases, such as Mozambique, where “off-book” loans were contracted to purchase fishing vessels and military equipment, and Zambia, which is suspected of hiding substantial external debt, have contributed to a general perception that African countries are unwilling to share their debt data and do not meet the third condition of debt transparency.
CABRI, through its Africa Debt Monitor (ADM), a platform for peer-exchange on African central government debt, has learnt that this general perception is false. More than half of the countries approached to participate in the ADM voluntarily completed an extensive three-part survey covering domestic- and foreign-currency debt, risk benchmarks and contingent liabilities, and cash- and debt-management institutional arrangements, policies and practices.
What seems to matter for governments is that they have a say in how their data is collected and used, and that data collection exercises result in insights and tools they find relevant and useful. The ADM was developed by CABRI in consultation with African debt management offices (DMOs) and provides the type of debt-related information that officials consider a prerequisite for making informed decisions and promoting debt sustainability. It features multiple tools that include (i) individual country debt profiles; (ii) cross-country comparisons of debt management practices and procedures; (iii) individual country data tables; and (iv) the Debt Data Explorer. These tools facilitate peer-learning and inter-country exchanges on debt management.
The ADM also serves as a repository of information for CABRI to better understand what works in debt management and to share these insights through our ADM Analysis series. The first reports in this series provide empirical evidence that optimal debt portfolio composition is not the product of compliance with international best practice or the existence of formal mandates or regulations. What appears more important is understanding local context and prioritising practices—such as effective coordination, consistency and clarity of roles—that result in improved functionality.
For example, in many areas of public administration, it is assumed that fragmentated structures lead to inefficiencies. However, the ADM Analysis reports show that this is not necessarily true. There are cases where local context implies that fragmented responsibility is necessary or, indeed, superior to unified responsibility. The ADM results show that countries with fragmented foreign- and domestic-debt operations have more domestic-currency debt than countries with completely unified operations.
The ADM results also suggest that the clarity and consistency of debt responsibilities are more important than whether these responsibilities are codified in law. Indeed, DMOs without formally codified mandates often have more domestic debt and more marketable debt. CABRI has previously argued for the importance of local-market development to provide stable long-term financing, reduce external vulnerability. and provide private issuers with benchmark bonds. A greater share of marketable debt, in turn, reflects the presence of instruments with which a secondary market can emerge or deepen.
While the benefits of comprehensive public debt information are well-known, the ADM Analysis provides another reason why DMOs should emphasise information-sharing and reporting. The number of reports a DMO produces is positively correlated with marketable debt and more of that marketable debt is long term. Countries reporting in most of the ways tracked by the ADM have, on average, nearly 50 percent of their debt in marketable instruments.
The ADM Analysis results further show that primary-dealer systems (PDS) are associated with significantly deeper primary domestic-currency debt markets. Specifically, countries with a PDS hold half of their debt in domestic currency, while countries without a PDS hold less than one-third of their debt in domestic currency. We have also shown that countries that issue at least monthly have one-third more marketable debt than countries whose auction schedules are irregular.
As we include more countries to the database and extend the time period of our analysis, the ADM platform will become even more useful for debt managers seeking to learn how their peers manage their debt portfolios. These additional data points will also provide us with greater evidence of the factors that contribute to effective debt management and sustainable debt portfolios.
[1] Public Debt Management Officer, Collaborative Africa Budget Support Initiative (CABRI), Pretoria, South Africa.
The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
