Debt Stakeholders’ Forum Urges Development of Coordinated Policies

Debt Stakeholders’ Forum Urges Development of Coordinated Policies

The Fourth World Bank’s Debt Management Facility (DMF) Stakeholders’ Forum took place on 2 and 3 May 2013, in Berlin, Germany. This year, the conference was hosted and partly sponsored by the German Federal Ministry of Economic Cooperation and Development, with all the meetings taking place within the Ministry. The Forum was officially opened by the Deputy Director General, German Ministry of Economic Cooperation and Development. A high level address was given by the German Parliamentary Secretary of State, Ms Gudrun Kopp.

In the context of the challenging environment facing debt managers today, the two day Forum focused on solutions for building resilience through coordinated policies for fiscal, debt policy and macroeconomic management, along with strengthened capacities and enhanced public institutions. Therefore, the theme of the conference was “Debt Management: Building Resilience through a Coordinated Policy Agenda and Enhanced Institutions”.

The objectives of the DMF Stakeholder’s Conference 2013 were as follows:

• To provide a forum for discussion of policy-relevant agenda on debt management.

• To discuss current challenges faced by developing countries with respect to debt management; and

• To foster knowledge exchange among participants.

The Forum targeted policy-makers and debt managers from developing countries, international and regional technical assistance providers, representatives of civil society organizations, as well as bilateral donors and multilateral development banks.

Participants at the conference were drawn from the World Bank, IMF, AfDB, UNCTAD, WAIFEM, MEFMI, CEMLA, OECD, German Federal Ministry of Finance, German Federal Ministry of Economic Cooperation and Development, representatives of bilateral donors, debt managers from low income countries and representatives of civil society organizations.

The Forum discussed several topical issues in plenary and break away sessions. One of the most interesting sessions was on The Global Perspective, Covering Global Developments Including Financial Globalization. Against the backdrop of the current volatile and uncertain international economic environment, building resilience of low income countries (LICs) against vulnerabilities to external shocks is a key issue in the short to medium term. This session highlighted the importance of the systemic developments in the international monetary and financial system that may have affected the demand for, and supply of, long-term investment financing available to support global growth and development efforts. In turn the changing landscape confronting policy makers and debt managers today highlights the importance of having a coordinated policy agenda, and a confluence of appropriate fiscal, debt and monetary policy measures to support a sustainable economic growth path with a long-term goal of enhancing shared prosperity.

The session received three presentations on (i) Global Developments, Outlook, and Risks, (ii) Global Perspective: Developing Countries and Africa, and (iii) “Financial Globalization: Retreat or Reset?”

Plenary Session 2 discussed how debt policy and management can contribute to building resilience in LICs, the instruments and capacity building activities that are needed to assess risks associated with a country’s debt portfolio, how concessional and non-concessional borrowing need to be balanced, the right balance of external versus domestic debt instruments, and the required institutional capacities. The topic was Enhancing Resilience of LICs – Medium Term Perspective. The session also looked at the role of multilateral institutions in domestic debt markets as market maker, standard setter, and in the development of benchmarks, especially for LICs. The lessons from country and regional experiences of debt policies and debt management capacity building efforts were also discussed.

Breakout Session 2 on Contingent Liabilities – hidden fiscal risks and mitigating associated macro-vulnerabilities focused on the issue of government contingent liabilities as a source of fiscal risks. The subject has gained increasing prominence today, not only in the context of the recent global crisis, but is seen by some developing countries as a way to finance their growth process through recourse to ‘off-budget’ borrowing vehicles, public partnership arrangements, and sovereign guarantees on market borrowing and borrowing by subnationals. These are sources of contingent liabilities that pose an incipient risk and source of budgetary vulnerability for the government.

This session highlighted the sources of such fiscal risks in government’s balance sheet and presented cross-country experiences on measures countries have taken to identify, monitor and mitigate such risks.

An interesting observation from one of the panellists in this session was that some recent studies have shown that Public Private Partnerships (PPPs) seem to present more costs than benefits especially in developing countries. There were mixed reactions to this finding, with most discussants maintaining that the risks and benefits of PPPs largely depend on how they are crafted, particularly whether the burden of the potential contingent liabilities is to be borne by the Government or by the private sector.

Another session on The Post HIPC : Borrowing Choices, Trade-offs and Risks had three presentations on the following topics:

 

i. Ghanaian Experience on the Post HIPC Borrowing Choices, Trade Offs and Risks;

ii. Review by the IMF and World Bank: The main Findings and Options for Reform on the Debt Limits, and

iii. The Post HIPC Borrowing Choices, Tradeoffs and Risks: Case of Zambia.

The objective of the session was to discuss the policy choices that natural resource rich countries like Ghana and Zambia have faced, and their respective needs for longer term infrastructure financing that has compelled these countries to diversify their borrowing sources, including on non-concessional terms and non-traditional lenders. The experiences of Ghana and Zambia highlighted the issue of costs-risks trade-offs in borrowing decisions that countries typically face and what diagnostics and institutional set-ups are essential in order to avoid expensive mistakes in medium term borrowing programs.