Strengthening Public Expenditure Management Program

Updated 24 June 2013

Concept Paper on
Making TDMW an Effective Middle Office for Debt Management

C1.2 Team
June 2013

Deepening MTBF and Strengthening Financial Accountability Project,

Ministry of Finance, Finance Division,
Government of the Peoples Republic of Bangladesh,
20th Floor, 6th Building, Bangladesh Secretariat,
Dhaka-1000, Bangladesh.

Foreword
This is an updated version with substantial additions and major revisions of an
earlier preliminary draft on the same subject prepared by the then International
Consultant Mr. Ishwar Das Agarwal in association with Dr. Ziaul Abedin and Dr.
Gour Gobinda Goswami, National Consultants for Debt Management and Policy.
The present draft has been prepared by Dr. Tarun Das, Technical Expert (Debt
Management and Policy) with significant contributions made by national
Consultants Dr. Ziaul Abedin and Ms. Mahmuda Begum.
The drafting group has benefitted from initial discussions and directives given by
the Coordination Committee in a meeting held on the 16 th April 2013 under the
chairmanship of Mr. A. R. M. Nazmus Sakib, Additional Secretary of Treasury and
Debt Management wing (TDMW). The following officers and consultants were
present in the meeting.
1.
2.
3.
4.
5.
6.

Mr. Md. Sarwar Alam, DS, TDMW

Dr. Tarun Kanti Das, International Consultant, DMTBF Project
Dr. Ziaul Abedin, National Consultant, DMTBF Project
Mr. Md. Rashedul Amin, SAS, TDMW
Mr. Abu Daiyan Mohammad Ahsanullah, SAS, TDMW
Mr. Md. Rashedur Rahman Sardar, SAS, TDMW

The present draft is being circulated to all stakeholders on debt management

from the Finance Division, Economic Relations Division (ERD0, internal
Resources Division (IRD) and Bangladesh Bank (BB) for their critical review and
suggestions. We are looking for not only verification of facts and information but
also additional material, if any, and critical assessment of the proposed policies
and institutional set up for public debt management. The draft will be revised on
the basis of their comments and suggestions before submitting formally to the
Finance Division.

Mr. Md. Mahiuddin Khan

Component Director (C1)
24 June 2013

Concept Paper on
Making TDMW an Effective Middle Office for Debt Management
Contents
1. Background, scope and objectives
1.1 A Typical Public Debt Management Office
1.2 International Best Practices of Debt Management Offices (DMO)
1.3 Stylized Framework for PDM Decision Making and Implementation
2. Debt Management Laws, Systems and Offices in Bangladesh
2.1
2.2
2.3
2.4

Legal Framework for Debt Management

Debt Management Offices in Bangladesh
Structure and Functions of TDMW
Weakness of the Present Debt Management System

3. Strengthening Middle Office Functions

3.1
3.2
3.3
3.4

Need for Strengthening Middle Office Functions

Typical Functions of a Middle Office for Debt Management
Reorganization of TDMW for Strengthening Middle Office functions
Proposed Allocation of Works for the Restructured TDMW

Annex: Case Studies of Various Debt Management Offices (DMO)

A. New Zealand
B. Australia
C. United Kingdom
D. Ireland
E. Portugal
F. Other Selected Countries of EU- Sweden, Hungary, Portugal
G. Brazil
H. India
Selected References

Concept Paper on
Making TDMW an Effective Middle Office for Debt Management
1. Background, Scope and Objectives
Public debt, both internal and external, has been the most important source for
financing the resource gap in the course of operationalizing development
activities of the Government of Bangladesh. External loans which are raised
through agreements with official bilateral sources and multilateral financial
institutions are of concessionary and of long-term nature. On the other hand,
domestic loans are raised from financial institutions and general public through
issue of treasury bonds and bills, and savings certificates and bonds, etc. which
are managed by NSD keeping in mind the stability of the financial market as well
as to facilitate the open market operations as an important instrument of
monetary management.
The recent debt crisis in the Euro Zone revealed that if debt management of any
government is not prudent it will adversely affect the economic, financial and
even social situations of not only that country but also regions that are closely
tied with it in terms of economic activities. Therefore, policymakers in every
country have to be concerned about the contagious effects of debt crisis in
partner countries and cautious about the management of public debt in their own
country. Prudent management of public debt requires conducting debt
sustainability analysis at regular interval through extensive analysis of debt
portfolio of the country highlighting cost and risks associated with the debt
portfolio. The fiscal policy authority then uses the results of the analysis to set
appropriate policy strategies.
1.1 A Typical Public Debt Management Office (PDMO)
International best practices indicate that there exists generally an independent
and comprehensive Public Debt Management Office which is in charge of
conducting all functions for efficient debt management according to the countrys
laws, regulations, strategies and policies for debt management. A PDMO puts in
place the desired framework, system or process to raise resources for funding
government expenditure at minimum cost and risks. This is usually supported by
formulation of a formal debt management strategy. The Guidelines for Public
Debt Management1 published in March 2001 jointly by the World Bank and the
IMF developed and disseminated sound indicate clearly the desired functions of
a PDMO, which are reproduced in Box-1.
1 The Guidelines for Public Debt Management published by the Fund-Bank in March 2001,
and subsequently revised in December 2003, and the Handbook, published in July 2001, were
followed by the Accompanying Document to Guidelines for Public Debt Management (2003),
which contained 18 case studies written by country authorities on how they implemented public
debt management based on sound principles.

Box-1. Six Desirable Functions of a Public Debt Management Office

1 Debt management objectives and coordination
ensure that the governments financing needs and payment obligations are met
at the lowest possible cost consistent with a prudent degree of risk.
develop a common understanding of debt management, monetary and fiscal
policy objectives.
2 Transparency and accountability
publicly disclose the objectives of PDM, policies and strategies for debt
management, the relevant measures of cost and risk, and allocation of
responsibilities of the staff, and
disseminate the status of public debt and external debt along with various
sustainability ratios at regular interval.
3 Institutional framework
clarify the legal authority to borrow and issue new debt, invest, and undertake
other transactions on the governments behalf.
ensure clear roles and responsibilities.
develop accurate and comprehensive debt data.
4 Debt management strategy
monitor, evaluate, and manage the risk structure of public debt.
implement cost effective cash management policies that minimize government
liquidity and repayment risk.
5 Risk management framework
manage the tradeoffs between cost and risk of government debt.
consider the impact of contingent liabilities on the governments financial
position.
6 Development and Maintenance of an Efficient Market for Government Securities
ensure that policies and operations are consistent with the development of an
efficient government securities market.
Source: The Guidelines for Public Debt Management (the Guidelines), published by the IMF and
World Bank in March 2001, and also reported in Strengthening Debt Management Practices:
Lessons from Country Experience and Issues Going Forward published by the World
Bank and IMF (27 March 2007).

In order to perform these functions efficiently, a typical debt management office

comprises four distinct and independent offices viz. (1) a front office for debt
management, (2) a Middle office for debt management, (3) a Back office for debt
management and (4) a Head Office for debt management (see Table-1.1 for
distinctive functions).
The front office is responsible for the efficient execution of all portfolio
transactions and negotiations with lenders consistent with the debt management
strategies and policies of the government. These transactions may include both
short- and medium-term borrowing in domestic and foreign currencies,
management of trading positions, investments, derivatives and hedging
6

transactions, if any. Within the front office, individual portfolio managers are
assigned different functional responsibilities (e.g., foreign currency borrowing,
liquidity management, domestic currency funding) on an instrument, market,
donor or currency basis.
The back office is responsible for accounting, auditing, data consolidation and
the dealing office functions for debt servicing. It has the responsibility for the loan
operations and the Management Information System (MIS) on public debt. It
makes debt service payments based on creditors invoices that are crosschecked with its own data base, monitors loan utilization, and prepares reports
for creditors and government.
Head Office is the final authority to approve debt management strategies,
policies and procedures and all public debt- both domestic and external.
The middle office (or risk management office) forms an important integral part of
overall debt management institution and is responsible for debt sustainability
analysis, formulation of debt strategy, establishing a risk management framework
for the debt office and for monitoring compliance against the portfolio and risk
management policies, which form part of asset-liability management. It is also
responsible for identification, measurement and monitoring of debt, cost of
borrowing and risk, establishment of benchmarks, preparation of reports,
dissemination of data and policy formulation for both short and medium term and
public and private debt. It is of great importance for any government to set up an
efficient middle office for debt management that is capable of conducting
quantitative analysis on debt using internationally accepted methods and tools.
Table-1.1 Distinctive Functions of Public Debt Management Offices
Front Office

Middle office

Back Office

Head Office

-- Loan negotiations,
--Debt issuance,
--Transactions inputs,
--Transaction pricing,
--Project planning,
--Lending/ on-lending,
--Liquidity management,
--Investment
management,
--Investors relations,
--Portfolio valuations,
--Portfolio analysis,
--Guarantee operations,
--Hedging and
derivatives.

--Develop debt strategy,

--Develop debt policies,
--Conduct DSA (Debt
sustainability Analysis),
--Risk/scenario analysis,
--Setting benchmarks,
--Performance
measures,
--Legal agreements,
--Assistance for legal
compliance,
--Link with Credit Rating
Agencies,
-Publications/
prospectus,
--Link between internal
and external audit.

--Confirmation of
payments valuation,
--Payments instructions,
--G/L debt entries,
--G/L reconciliation,
--Project administration,
--Disbursements,
--Debt service forecasts,
--Audited debt reports,
--Maintain debt files,
--Maintain debt data,
--Maintenance and
security of debt systems,
-- Interface with other
units.

-- Final
authority to
approve:
-- debt
management
strategies,
--policies and
procedures.
-- all public
debt (both
domestic and
external);
--Legal
compliance

1.2 Iinternational Best Practices of Debt Management Offices (DMO)

Countries all over the world are recognising the need for a separate DMO for
debt management functions. Most OECD countries established dedicated debt
management units either within the Ministry of Finance or outside the Ministry of
Finance through a separate legislation in the late 1980s and early 1990s, in the
face of fiscal problems and high debt-to-GDP ratios. More recently, several
emerging economies, including Brazil, Argentina, Colombia, and South Africa,
have also restructured and consolidated debt management. In the Annex
attached to this paper we present case studies of selected countries (viz. New
Zealand, Australia, South Africa, United kingdom, Ireland, Portugal, Sweden,
Italy, Hungary, Brazil, India) to highlight how they have re-structured their debt
management offices in recent years.
Naturally, the particular debt management arrangements in any country are
influenced by its institutional set-up and political economy constraints. However,
there are certain common features across countries that have restructured and
modernized public debt offices. These include the following:
(1) The Central Bank no longer manages public debt; there is a clear
separation between monetary policy and public debt management.
(2) Debt management is integrated in one entity rather than dispersed over
several departments and authorities.
(3) The split between external and domestic debt management gives way to
integrated debt management, with a Front-Middle-Back-Head office
structure.
(4) The DMO focuses on making debt management more transparent.
International practices indicate that there are basically four types of public debt
management offices viz. (i) located under the Ministry of Finance as a separate
entity like the Treasury or a Debt Management Agency; (ii) debt office is located
in the central bank; (iii) as an autonomous institution outside both the Ministry of
Finance and the Central Bank; and (iv) the debt offices are dispersed between
the Ministry of Finance and the Central Bank with varied responsibilities as in the
case of Bangladesh (see Table-1.2 for selected countries).
The first three categories refer to a full-fledged debt office and could be
differentiated by the location and the degree of autonomy accorded to the debt
office. International best practices indicate (see Table 1.2) that the bulk of the
debt offices are located as a separate agency under the Ministry of Finance with
sufficient degree of operational independence (i.e. first category). This is
because MOF in general is in charge of dealing multilateral financial institutions
and bilateral donors. So if the debt office is located within the MOF, it can
assume sufficient degree of operational independence for loan negotiations and
debt management.

Table-1.2 Institutional Location of Public Debt Management Responsibility

Under the
Located within Located
Dispersed
Ministry of
the Central
outside both
between MOF
Finance (MOF) Bank (CB)
MOF and CB
and the CB
or Treasury*
as a separate
entity
Advanced Economies
Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Japan

Netherlands

New Zealand

Portugal

Spain

Sweden

Switzerland

United Kingdom

United States

Emerging Economies
Argentina

Bangladesh

Brazil

China

Colombia

Hungary

India

Korea

Mexico

South Africa

Thailand

Turkey

* In many countries, although debt offices are under the Ministry of Finance or Treasury, the debt
office works as an autonomous entity with sufficient operational independence.
Source: Draft document on Sound Practices in Sovereign Debt Management, FPS Department,
The World Bank, March 2000; OECD as mentioned in Risk Management of Sovereign Assets and
Liabilities, Working Paper, WP/97/166, IMF, December 1997 and national authorities.

The main argument for entrusting sovereign debt management responsibility

within the Ministry of Finance or Treasury is the proximity of location, which
enables the senior management within the Ministry of Finance to review and
assess the performance of the entity more easily. This issue of geographical
proximity is particularly important when a full-fledged centralized debt office is
being set up and management competencies are unproven.
Another factor, which prompted many governments to locate the debt office
within the Ministry of Finance, is that the public debt has budgetary implications
and co-ordination between budget making divisions and the debt office facilitates
effective management of debt and fiscal deficit.

1.3 Stylized Framework for Public Debt Management Decision Making

And Implementation Process

According to a study made jointly by the World Bank and IMF (2007), in a country
having efficient public debt management, the governance structure supporting
the Public Debt Management (PDM) delineate clear roles and responsibilities for
all the relevant institutions; appropriate checks and balances are put in place,
along with clear reporting lines; and accountability and transparency are ensured
through the disclosure of activities and outcomes (as depicted in Figure 1.1).

Figure-1.1 Stylized Representation of PDM Decision-Making Process

10

According to the Fund-Bank study, there are various ways to strengthen the
institutional set up and capacities for debt management. Some countries (e.g.,
Bulgaria, Croatia, and Nicaragua) have strengthened the governance framework
supporting PDM, while Colombia, Indonesia, and Uruguay consolidated PDM
responsibilities in one unit. Nigeria and Hungary have formed semi-autonomous
debt management agencies, while Turkey and Costa Rica have formed
coordination committees.

11

However, fragmentation of debt management responsibilities still remains a

problem. Some countries with centralized debt management responsibilities
continue to manage domestic and foreign debt separately. But even with
fragmentation, close coordination can still produce a consolidated public debt
database (e.g., India and Nicaragua).
Some countries (e.g., Colombia, Indonesia, Jamaica, Lebanon, Tunisia, Turkey,
Sri Lanka, and Zambia) have made significant progress to improve transparency.
Debt managers have become more active in developing their domestic public
debt markets. Brazil, Chile, Colombia, Mexico and Turkey increased liquidity, and
reduced interest rate volatility, by introducing benchmark bonds and publishing
annual or monthly auction schedules.

2. Debt Management Laws, Systems and Offices in Bangladesh

In general, developed countries manage their debt through an integrated and

independent Debt Management Office (DMO) as it helps to frame effective debt
management strategy, given the monetary policies formulated by the Central
Bank and the fiscal and budgetary policies formulated by the Ministry of Finance.
Such separation of monetary, budgetary and debt management policies enable
these authorities not only to avoid any conflicts of interest but also to remain at
arms length from each other and not to be influenced unduly by others. However,
in Bangladesh, as in India, there does not exist an integrated Debt Management
Office, and various functions for debt management are scattered over different
Divisions in the Ministry of Finance and in the Bangladesh Bank. While for
Bangladesh, in the long term it may be advisable to set up a separate and
integrated DMO, in the medium term, it may be helpful to develop a Middle Office
for effective debt management.

2.1 Legal Framework for Debt Management

The following Acts passed by the Parliament and the Orders issued by the
President govern the management of public debt in Bangladesh.
(a) Constitution of the Peoples Republic of Bangladesh: Chapter 2 of the
Constitution dealing with Legislative and Financial Procedures empowers
the Government, to borrow and to give guarantee and authorizes the
12

Government to charge all debt charges including interest, repayment or

amortization of capital and other expenditure in connection with the raising
of loans and the service and redemption of debt.
(b) Rules of Business, 1996: In exercise of the powers conferred on him,
the President has explicitly allocated the management of public debt to the
three Divisions of the Ministry of Finance viz. the Finance Division (FD),
Economic Relations Division (ERD) and the Internal Resource Division
(IRD). The Finance Division is allocated the power of borrowing and
floatation of loans, administration of public debt including aids, and
matters relating to borrowings by public bodies such as Corporations,
Municipalities etc. The Economic Relations Division is allocated the work
of assessment, mobilization, negotiation and allocation of all multilateral
and bilateral economic aid, foreign debt management including debt
profiling and budgeting, debt servicing and maintenance of accounts
thereof. The Internal Resource Division is allocated national savings.
(c) The Public Debt Act, 1944: The Act which came into effect on September
1, 1944 provides for various forms of securities which can be issued by
the Government for the purposes of borrowing and other related matters.
(d) The Public Moneys and Budget Management Act, 2009: The Act, inter
alia, lays down the sources from which the borrowing can be made,
institutions which can borrow and issue guarantees and the objectives for
which borrowings can be made.
(e) Bangladesh Bank Order, 1972: The Order empowers the Bangladesh
Bank (BB) to undertake management of the Public Debt on behalf of the
Government.
The Public Debt Act was passed in 1944 when Bangladesh was a part of British
India. With the passage of time and the developments that have taken place in
the interregnum The Public Debt Act, 1944 has become outdated and as such it
requires a thorough review so as to make it more comprehensive to meet the
requirements of the present times. The other Acts also need review and
amendments carried out, if necessary, as a consequence of amendments in The
Public Debt Act, 1944. It would be advantageous to have one single legislation
on management of Public Debt in addition to the Rules of Business.
Currently, there is no legislation or Presidential Order which provides for the roles
and responsibilities of various authorities within various institutions associated
13

with public debt management. These need to be clearly specified and

incorporated at the time of reviewing The Public Debt Act, 1944 or making the
new single legislation as suggested above.

14

2.2 Debt Management Offices in Bangladesh

As mentioned earlier, there is no centralized debt management office in

Bangladesh. Five entities in Bangladesh viz. Economic Relations Division (ERD),
Finance Division (FD), Internal Resources Division (IRD), Office of the Controller
General of Accounts (CGA) and Bangladesh Bank (BB) manage public debt.

Economic Relations Division (ERD) acts as the front and middle offices for
external debt and assesses the needs of external assistance, devises strategy
for negotiations and mobilizing foreign assistance, formalizes and enables aid
mobilization through signing of loans and grant agreements.

ERD also brings out a flagship publication entitled Flow of External Resources
into Bangladesh, which presents updated information on resource flows into
Bangladesh from multilateral and bi-lateral development partners. ERD also
analyzes external debt portfolio, reports to concerned stakeholders and keeps
records of amortization of loans. Thus ERD and its Foreign Aid Budget and
Accounts (FABA) Wing performs the functions of the front, middle and back office
of external public debt.
At FD, the Treasury and Debt Management Wing (TDMW) basically works as a
middle office for debt management. At BB, the Debt Management Department
(DMD) is responsible for management of domestic debt in consultation with the
Ministry of Finance and keeping records of domestic debt. The record of external
private debt is kept by Foreign Exchange Reserve and Treasury Management
Department (FRTMD) at BB. The Internal Resource Division (IRD) raises retail
funds through NSD.
Front Offices for Borrowing
The Bangladesh Government borrows from both external and domestic sources
to meet budget deficits. External loans are raised by the Economic Relations
Division (ERD) and domestic borrowings are raised jointly by the Bangladesh
Bank (BB) and the Internal Resources Division (IRD).
BB, in consultation with the FD, raises wholesale public domestic debt by issuing
treasury bills and bonds, while IRD raises retail debts by selling savings
instruments. The Directorate of National Savings (commonly known as NSD)
15

raises retail debts on behalf of IRD. Savings instruments issued by NSD vary in
terms of tenor and interest rates and are commonly known as NSD schemes.
Record Keeping
As regards external loans, ERD processes and maintains all records through its
DMFAS 6 system. Data kept in DMFAS 6 are available on-line and forwarded to
the FD automatically. Private external debt data are compiled by BB. But, BB
does not share its data automatically with other debt offices unless a formal
request is made.
As regards domestic debt, BB maintains records of data of treasury bills and
bonds. It also compiles data on retail debt based on the information sent by
commercial banks that sell NSD schemes to the public. However, data on retail
debt maintained by BB is not complete as the Post Offices also sell NSD
schemes to the public but do not report those sales to the BB. NSD maintains a
complete account of domestic debt accumulated by the sales of NSD schemes
and it forwards its data to IRD.
Table-2.1: Present Structure of Public Debt Management in Bangladesh
Office Levels

External Debt

Domestic Debt

(1)

(2)

(3)

Missing Links /
Action Areas
(4)

FRONT OFFICES
The front office is
responsible for the
efficient execution
of all portfolio
transactions and
negotiations with
lenders consistent
with the debt
management
strategy and
policy of the
government.

Economic Relations
Division (ERD)
formalizes and
enables aid
mobilization through
signing of loans and
grant agreements.

Debt Management
Department (DMD)
of the Bangladesh
Bank (BB) for
domestic debt
through issue of
Treasury Bills and
Treasury Bonds.
Internal Resource
Division (IRD) in the
MOF raises retail
funds through issue
of NSD certificates .

MIDDLE OFFICE

16

Cash management
in the government
and liquidity
management in the
market by the
Bangladesh Bank
need strengthening
and better
coordination through
forecasting
capability building
for both areas.
Management of
contingent liabilities
need strengthening.

Office Levels

External Debt

Domestic Debt

(1)

(2)

(3)

Conducts research
on risk management
and provides advice
on debt
management
strategy and
policies. Functions
include
1) Conducts debt
sustainability
analysis.
2) Determines
benchmarks for
domestic and
external debt
mix; currency,
interest rate,
and maturity mix
as part of risk
management
strategy.
3) Decides on
borrowing
instruments, and
timing etc.
4) Preparation and
dissemination of
debt reports and
5) Formulation of
debt strategy
and policies.

Treasury and Debt

Management Wing
(TDMW) in the
Finance Division.

Treasury and Debt

Management Wing
(TDMW) in the
Finance Division

Economic Relations
Division (ERD)
assesses the needs
of external
assistance, devises
strategy for
negotiations and
mobilizing foreign
assistance, ERD
brings out a flagship
publication entitled
Flows of External
Resources into
Bangladesh, which
presents updated
information on
external resource
flows into
Bangladesh from
multilateral and bilateral development
partners and
records of
amortization of
loans. ERD also
analyses external
debt portfolio,
produces debt
reports and shares
with creditors, IMF,
BB, Parliament, FD
and other
stakeholders.

Missing Links /
Action Areas
(4)
1. Setting up an
integrated middle
office for debt
management for
both domestic and
external debt.

2. Strengthening
capabilities for:
(a) Conducting debt
sustainability
analysis (DSA),
(b) determination of
debt sustainability
benchmarks;
(c) medium and
long-term public
debt management
strategy.
(d) Complete
computerization
(e) Data analysis
(f) Scenario
exercises and
sensitivity testing.
2. Transparency
Reports on Public
and External debt.
3. MIS for ready
availability of Public
Debt data for top
management in
Ministry of Finance.

BACK OFFICES
Record keeping,
auditing,
accounting, and

Foreign Aid Budget

and Accounts Wing
of the ERD keeps

Office of the
Controller General
of Accounts (CGA)
17

Needs further
strengthening and
integration of public

Office Levels
(1)
systems support,
maintenance and
security.

External Debt

Domestic Debt

(2)
records of external
debt and deals with
reconciliation of
external debt. ERD
is also responsible
for external debt
servicing and
maintain accounts
thereof.

(3)
is concerned with
recording of receipts
and payments of
most public debt
except for the retail
debts undertaken by
the Post Offices on
behalf of NSD

Foreign Exchange
Reserve and
Treasury
Management
(FRTMD) at the BB
keeps records of
external private data

Debt Management
Department (DMD)
in the Bangladesh
Bank keeps record
of T-Bills and Tbonds;

Missing Links /
Action Areas
(4)
debt statistics so
that all debt
management offices
can be inter-linked
together and data
on outstanding
public debt is
available on real
time basis.

NSD keeps records

of receipts and
payments of all
savings products
marketed under
NSD name; and
provides monthly
statistics to IRD for
information.
Head Office
Approves debt
management
strategies, policies
and procedures and
all public debt- both
domestic and
external.

Prime Minister
through Finance
Minister

Finance Minister

Procedures and
laws for public debt
management need
reviewing and
strengthening.

Analysis of Debt Data: Analysis of debt data and preparing report on debt
related issues is mainly done by the Treasury and Debt Management Wing
(TDMW) at the Finance Division (FD). ERD and BB regularly publish reports on
external and domestic debt respectively but they neither provide any analysis on
the issue of sustainability of debt nor formulate debt strategy for the Government
of Bangladesh (GOB). These are the responsibilities of the TDMW. However, to
18

conduct analysis the TDMW needs data that are not automatically supplied to it
by the record keeping entities.
Debt Sustainability Analysis and Medium Term Debt Management Strategy:
At present, under the Deepening Medium Term Budgeting Framework (DMTBF)
and Strengthening Financial Accountability Project, efforts are undergoing for
capacity building to conduct DSA and MTDS analysis. An inter-agency Technical
Group (TG) has been formed to conduct these activities and the TG has been
given theoretical and hands-on training for conducting DSA and formulating
MTDS with the help of the standards Fund-Bank Toolkits. However, for
sustainability of these activities, it is better to set us a dedicated unit within
TDMW and to train these officers for these activities.
Figure-1: Public Debt Management Offices in Bangladesh
Domestic Public
Debt Management

External Public
Debt Management

OFFICEBACK
MIDDLE OFFICE
OFFICEFRONT

Wholesale debt

ERD

NSD

BB

BB

ERD

Retail debt

BB

IRD

TDMW

NSD

CG
A

BB

2.3 Structure and Functions of TDMW

The TDMW of FD is headed by a Joint Secretary (JS)/ Additional Secretary.
There are four branches under the AS/ JS each headed by a Deputy Secretary

19

(DS). Under each branch, there are sections headed by Senior Assistant
Secretaries/ Assistant Secretaries (SAS/ AS). The four branches of TDMW are(a) Debt Management Branch;
(b) Treasury Branch;
(c) Non-Tax Revenue (NTR) Branch; and
(d) Public Private Partnership (PPP) Branch.
This organizational set up is depicted in Figure-2. The Debt Management
Branch has four sections under it. These are- Public Debt Management Section
(PDM), Domestic Debt Management Section (DDM), Contingent Liability
Management Section (CLM) and the Cash Management and Training Section.
The Treasury Branch has three sections under it, viz. Treasury Section, Debt
Service Liability Section-1 (DSL-1) and Debt Service Liability Section-2 (DSL-2).
The Non-Tax Revenue Branch has three sections viz. NTR-1, NTR-2, and NTR3. PPP Branch also has three sections, namely viz. Section of the Technical
Assistant, Viability Gap Funding Section (VGF) and Project Review Section.
The Debt Management (DM) Branch of TDMW takes cares of the debt related
analysis and suggests policy recommendations to the Government. Apart from
the above set up, there are three Committees to provide guidance and to monitor
the activities of the TDMW. These Committees are- Coordination Council, Cash
and Debt Management Committee (CDMC), and the Hard-Term Loan Standing
Committee (HTLC). The Debt Management Branch reports to all these
Committees. In the following sections, roles and responsibilities of these sections
and committees are discussed.
Contingent Liability Management (CLM) Section on behalf of the Government
of Bangladesh, issues guarantees and counter-guarantees and maintains their
records. It is also responsible for preparing debt database.
Cash Management Section analyzes all information sent by BB on government
receipts and payments. It is responsible to synchronize cash inflows and cash
outflows to prepare Annual Cash Plan and manages bank account of the
Government of Bangladesh.
Treasury Management Section: Treasury section does not deal with any debt
management functions of the government. Its main responsibilities include to
take appropriate steps against confiscated gold bar, tasks related currency notes,
supplying padlock to district treasury offices etc.
DSL Sections 1 & 2: There are two sections at TDMW that deal with issues
pertaining to Debt Service Liability (DSL) of the government. These two sections
keep accounts of receipts and payments of the government from and to the
corporate, autonomous bodies and banks. These two sections, in association of
20

the monitoring cell, prepare estimates of receivables from the corporate,

autonomous bodies and banks. These sections also deal with on-lending of
loans received from the development partners and provide comments on
subsidiary loan agreements (SLA) of autonomous and corporate bodies.
Recently, these sections have started to compile records of government equities.
The Non-Tax Revenue Branch does not deal with any issues related to debt
management. It has three sections all of which are concerned with issues related
to management and accounting of non-tax revenue collected by the ministries
and various agencies of the government.
Figure 2: Organizational Structure of TDMW
WINGS

BRANCHE
S

SECTIONS

DS
S
D
SA
A
S
SC
S
/( /(
T(
N
P
A
D
A
rP
T
P
S
e
S
er
R
P
b
ao
)
(
t
(
PjT
C
s
D
N
T
V
De
L
u
S
T
e
G
M
r
Mc
r
L
R
c
F
a
e
-yt
h
)
n
a
)s
1
2
3
n
a
i) R
g
u
ce
r
av
m
y
l i)
e
n
e
Aw
t
s)
s
i
s
t
a
n
t
)

The Public Private Partnership (PPP) Branch was established within FD to

examine the PPP projects and determine the viability gap funding required for the
PPP projects. Although there is no direct link of this Branch with the debt
management of the government, it has profound implications for contingent
liability management and the budget allocated for subsidy purposes.
21

Coordination Council: The Coordination Council was formed under Section 9A

of the Bangladesh Bank Order 1972. Minister for Finance is the Chairman of this
committee. Minister for Commerce, Governor of Bangladesh Bank, Finance
Secretary, Secretary of IRD and Member (Programming) of the Planning
Commission are members of this committee. The Council co-ordinates the
macro-economic framework including fiscal, monetary and exchange rate
strategies and policies, and ensures consistency among macro-economic targets
of growth, inflation, and fiscal, monetary, and external accounts.
Cash and Debt Management Committee (CDMC): The CDMC is responsible to
provide policy directives on cash and debt management of the Government. This
committee also monitors issues that affect fiscal discipline and provide guidance
to improve competitiveness in the government securities market. This committee
is headed by the Finance Secretary and a number of representatives from FD,
ERD, IRD, CGA, BB and NSD.
Hard Term Loan Standing Committee (HTLC): The Hard Term Loan Standing
Committee (HTLC) was formed in 1980 to consider cases of public borrowing
that is non-concessional and tenure of which is relatively short. The Committee is
headed by the Minister for Finance and includes the Minister for Planning,
Governor of Bangladesh Bank, Finance Secretary, Secretary of Commerce,
Secretary of ERD and joint-secretary of ERD as members.
2.4 Weakness of the Present Debt Management System
Fragmentation: It is evidenced from above discussions and Figure-1 that the
public debt management system in Bangladesh is fragmented and disorganized.
There is no single office where all kinds of debt data are gathered, maintained,
analyzed and integrated debt management strategies and policies are
formulated. Without such an organization it is difficult to formulate and implement
effective debt management policies.
Irregular data flow among debt offices: Debt data from one office to another
do not flow automatically. Although FABA and BB are using DMFAS V6 system
for debt recording, they are not yet connected with TDMW through any system at
all. Every time TDMW wants to conduct any debt sustainability or risk analysis, it
has to ask for data from BB, ERD and NSD. This process limits the ability of
TDMW to perform as an effective middle debt management office.

22

Lack of reconciliation of debt data: There exists more than one back office of
debt management, which makes it difficult to reconcile debt data. For example,
the retail domestic public debt data sent by NSD to TDMW do not tally with that
of BB. Moreover, the BB domestic debt data base often does not include data on
retail debt which is raised through the Post Offices. BB maintains a good record
of the domestic public debt raised through treasury instruments, but the database
is not readily available to TDMW.
Domination of fiscal policy authority over the middle debt office: For
prudential debt management it is important that debt management middle office
is separate from the fiscal policy authority. This is not the case in Bangladesh.
The middle debt management office of the government of Bangladesh, i.e.
TDMW, sits right in the middle of the Ministry of Finance and is composed of
officials from FD. As TDMW is a Wing of FD, it is also under direct control of the
fiscal policy authority, i.e. FD. Therefore, it is possible that debt management
policies and strategies are influenced by fiscal policy objectives.
3. Strengthening Middle Office Functions in the TDMW
3.1 Need of an Independent Middle Office for Debt Management
The debt burden indicators, cited in the Debt Sustainability Analysis (DSA) of
2011 conducted for Bangladesh by the IMF and conducted by us for the
subsequent year 2012 are well below the threshold values prescribed by the
World Bank and the IMF. This indicates that risk of debt distress for Bangladesh
is low. However, the East Asian financial and economic crisis experienced at the
end of 1990s and the recent experience of the European Debt Crisis shows that
apparently favorable conditions may change quickly towards adverse directions if
the systems and procedures for monitoring and policy support are weak.
According to the Country Policy and Institutional Assessment (CPIA) conducted
by the World Bank, Bangladesh is ranked as a medium policy country. This
means that, although not severe, there are considerable risks that weak policy
may cause economic problems. Therefore, in spite of favorable DSA indicator
values, Bangladesh needs a rigorous monitoring system for its public debt
management.
In addition, the threshold values for DSA indicators prescribed by the World Bank
and the IMF do not capture risks arising out of domestic debt. DSA of 2011
reveals that domestic debt in Bangladesh is high and the stress tests cause the
indicators values to deteriorate considerably. As the conventional DSA does not
23

focus on the domestic debt, it is important that the Government has an office to
monitor and analyze the scenarios involving domestic debt.
As discussed earlier, at present the flows of debt data among the debt
management offices are not automatic and data of front, middle and back offices
are not cross-validated or reconciled regularly. As a result, whenever the debt
data are required for analytical purposes, it becomes difficult for the analyst to
collect accurate data. This problem persists due to the fragmented nature of the
debt management offices and their responsibilities.
Setting up of an effective middle debt management office that will function as a
hub for analysis as well as source of relevant data can remove these problems.
Currently, TDMW carries out all analytical tasks related to debt management.
Therefore, it has the potential to work as an effective middle debt management
office if effective connectivity of TDMW is established with all other debt
management offices and organizational setup of TDMW is modified suitably.
On the basis of above discussions on the importance of a middle office for public
debt management and international best practices for setting up an independent
debt office, it is proposed that the Treasury and Debt Management Wing (TDMW)
in the Finance Division may be reorganized and strengthened in order to perform
the functions of a Middle Office for management of public debt.
3.2 Functions of Middle Debt Management Office
The middle debt management office is expected to analyze public debt portfolio
and provide the government policy directions regarding choice of debt mix which
will minimize cost and risks involved in borrowing. On the basis of this
perception, the set of functions of middle office for debt management may
include at least the following:
A. Debt related analysis
o To conducting Debt Sustainability Analysis (DSA)
o To evolve and update the Medium Term Debt Strategy (MTDS)
o To assess cost and risk of debt portfolio
o To prepare redemption profile of public debt and interest payment
o To evolve a sound policy for issue of government guarantees and
to estimate the size of contingent liabilities and assess the effect
of such contingent liabilities on the fiscal situation of the State
o To Assess the cost and risk of borrowing from various sources
o To monitor the trends of public borrowing and public debt stock
24

o To evolve a sound policy for providing loans to SOEs and

autonomous bodies
o To monitor the receipt of income by way of dividend/ interest on
loans given to the state owned enterprises (SOEs) and
autonomous bodies
o Any other activity necessary for debt related analysis

B. Data management and publication

o To compile public debt data for both external and internal debt and
private sector external debt data using DMFAS 6
o To generate debt reports and submit MIS to higher authorities at
regular periodical intervals
o To collect of retail debt data from the concerned agencies and
include the same into the DMFAS database
o To disseminate debt data through periodical publications and on
the FD website
o To maintain database on guarantees and counter-guarantees
issued by the Government
o To prepare and maintain database of on-lending
o To issue auction calendars for Treasury bonds and bills
o To estimate the cash requirements of the Government
C. Coordination
a. To assist CDMC, HTLC and Coordination Council
b. To liaise with Macroeconomic Wing to monitor domestic and
macroeconomic trends
c. To liaise with Budget Wing to monitor fiscal developments
d. To liaise with the Monetary Policy authority to monitor
developments in the financial sector
e. To liaise with ERD to monitor trends of flow of external resources
f. To liaise with NSD to monitor trends of flow of retail borrowing of
the government
g. Any other activity to ensure better coordinated debt management

25

3.3 Proposed Reorganization of TDMW

For Strengthening Middle Office Functions
Outline of reorganization of TDMW
As discussed in section 2.3, there are 13 sections under 4 branches within
TDMW, of which 4 sections are controlled by the Debt Management Branch.
Responsibilities of these four sections cover activities related to monitoring of
debt and formulation of policies related to public debt. However, recently a
number of new activities such as issuance of sovereign bond, preparation of
DSA, development of MTDS and extensive use of DMFAS 6 to produce quarterly,
half yearly and annual debt Bulletins/ Reports have emerged. According to the
Allocation of Business all these activities will need to be undertaken by TDMW
and therefore a reorganization of the Wing is required.
Getting administrative approval to establish a new branch within TDMW, which
will undertake the responsibility of operating DMFAS 6 and preparing DSA/
MTDS, is time consuming. However, these activities have already commenced
and are being implemented by the existing manpower of TDMW with constraints
on required staff. To mitigate these constraints, TDMW may be reorganized
temporarily according to the manner stipulated in the Figure-3. Once the needed
administrative approval from the government is obtained to establish a new
branch within TDMW, the original setup may be restored.
According to the temporary internal reorganization scheme proposed in the
Figure-3, the desired branch of TDMW, which will take charge of maintenance
and operations of DMFAS 6 and development of DSA/ MTDS, can be created
without making any changes in other Wings of the FD. This scheme can be
implemented just by merging two sections of DSL branch and shifting this
merged section to NTR branch. This sort of merger will vacate one post of DS
and one post of Senior Assistant Secretary. In addition to this, the Treasury
section of DSL branch may be merged with NTR-3 section of the present NRT
branch. This will vacate another post of Senior Assistant Secretary. Thus in the
aggregate, one post of DS and two posts of Senior Assistant Secretary will be
available in the TDMW and may be given the charge of the new tasks related to
the middle office functions as described earlier.
The proposed reorganization can be easily implemented with the approval of
Additional secretary (TDMW) and the final administrative approval of the
Secretary. As no other wings in the FD will be affected by this reorganization, and
no additional staffs are required for TDMW, the reorganization will be acceptable
to all. There is no doubt that the reorganization will be in public interest and will
have rich dividends as the middle office functions will be more focused and
strengthened for public debt management and policy.

26

Figure-3: Restructured TDMW

SS
D
S
D
SA
S
A
A
S
SC
S
S
(/
(
/
(
D(
N
P
A
A
D
A
M
T
A
P
S
S
e
S
P
F
R
S
P
b
Ar
)
(
(
t
(
o
Sj
D
C
N
(
T
V
D
Pe
L
a
T
D
e
G
M
&
o
M
s
R
S
c
F
a
b
c
Ft
l
)
L
h
)
n
Pa
A
i
1
2
3
)
n
oR
S
c
M
)
i
g
M
le
)
y
a
&
c
a
iv
n
a
m
n
ci
A
a
T
l
e
a
ye
n
g
r
n
g
ae
e
A
t
A
l
m
a
s
)
nm
y
e
s
e
an
s
n
u
i
lt
i
t
r
s
s
)
y
t
sR
)
a
i
n
se
t
f
)o
r
m
)

3.4 Proposed Allocation of Works for the

Restructured Treasury and Debt Management Wing (TDMW)
DMFAS and Debt Policy Analysis Branch
DMFAS Section
Consolidation, Management and cross validation of DMFAS-V6 database
on Public Debt
Preparation and Analysis of Reports from DMFAS-V6 database
Establishing interlinkages with other debt management offices as regards
all matters relating to DMFAS V6
Maintenance and operations of DMFAS Server
Preparation and publication of Quarterly Debt Bulletin
Preparation and publication of Annual Debt Report
Any other works related DMFAS 6 as assigned by higher authories
Debt Policy Analysis Branch
Formulation and monitoring implementation of debt management policies
Conducting Debt Sustainability Analysis, Preparation of DSA Reports with
policy prescriptions and desirable actions by the government
27

Determination of annual plans for both domestic and external loans

Conducting Medium Term Debt Strategy Modeling and determining
benchmarks for external/ domestic debt mix, currency mix for external
debt, maturity, interest rates etc.
Projection of debt services for the medium term and analysing their impact
on the government budget and fiscal situation
Idetification and measurement of Contingent liabilities and Quasi Fiscal
liabilities, analysis of their impact and formulation of policies for
management of contingent liabilities
Any other works related to debt management policies, strategy and
benchmarks as assigned by higher authories

Debt Management Branch

Public Debt Management Section
All works related to identication of sectors and broad areas to be financed
by public debt and monitoring and review their implementation
All works related to Cash and Debt Management Committee (CDMC) and
Cash and Debt Management Techncial Committee (CDMTC)
All works relating to Coordination Council
All works related to Hard Term Loan Standing Committee
Any other works related to these subjects assigned by higher authories
Domestic Debt Management (DDM)Section
All existing works assigned to DDM Section
Contingent Liability Management Section
All existing works assigned to CLM Section
Cash Management section
All existing works assigned to Cash Management and Training Section
Non-Tax Revenue (NTR), Treasury and DSL Branch
NTR-1 Section
All existing works assigned to NTR-1.
NTR-2 Section
All existing works assigned to NTR-2.
NTR-3 and Treasury Section
All existing works assigned to NTR-3 Treasury-1.
Debt Service Liability (DSL) Section
All existing works assigned to DSL-1.
All existing works assigned to DSL-2.
Public-Private Partnership (PPP) Branch
All existing works assigned to PPP Branch.
28

Annex
Iinternational Experiences of Debt Management Offices (DMO)
Countries all over the world are recognising the need for a separate DMO for
debt management functions. Most OECD countries established dedicated debt
management units either within the Ministry of Finance or outside the Ministry of
Finance through a separate legislation in the late 1980s and early 1990s, in the
face of fiscal problems and high debt-to-GDP ratios. More recently, several
emerging economies, including Brazil, Argentina, Colombia, and South Africa,
have also restructured and consolidated debt management. Naturally, the
particular debt management arrangements in any country are influenced by its
institutional set-up and political economy constraints. However, there are certain
common features across countries that have restructured and modernized public
debt offices. These include the following:
(1) The Central Bank no longer manages public debt; there is a clear
separation between monetary policy and public debt management.
(2) Debt management is integrated in one entity rather than dispersed over
several departments and authorities.
(3) The split between external and domestic debt management gives way to
integrated debt management, with a Front-Middle-Back-Head office
structure.
(4) The DMO focuses on making debt management more transparent.
For illustrative purpose, structures of structures and functions of some selected
DMOs from both developed and developing countries are described below.
A. New Zealand
New Zealand was the first country to create a modern debt management office
which was located within the Ministry of Finance, albeit with elements of private
sector ethos and commercial principles with an identity of its own within the
Finance Ministry. It is separate from the influence of both monetary and fiscal
authorities, and has clearly defined objectives and policies, sound organisational
structures and internal control with more technical staff. The NZDMO has been
allowed to have flexible salary structure and promotion prospects for its staff and
to provide higher salaries than civil service based on performance.
The Government of New Zealand consolidated and coordinated the public debt
management functions that had been dispersed in different parts of the Treasury
by creating New Zealand Debt Management Office (NZDMO) in 1988. .During
1980s, the debt and cash management decisions were taken by three different
parts of the Treasury which, in addition, had other responsibilities to perform. The
29

group responsible for foreign currency debt and cash management had also
responsibility for a number of public policy issues; the group responsible for NZ
dollar debt had responsibility for advising on monetary policy; and the group
responsible for monitoring the Treasury bank accounts and arranging
disbursements to Government departments had also responsibility for the
Government's financial statements and accounting operations. These subfunctions of public debt management were loosely coordinated. The reporting
responsibilities were also unclear. Moreover, credit limits were not defined clearly,
especially with respect to the aggregation of credit risk for different instruments.
These gaps created uncertainty as to the extent and nature of the portfolio's
exposure. This created difficulty for risk management.
The NZDMO was created as a branch of the Department of Treasury responsible
for managing the government's debt, overall net cash flows, and some of its
interest-bearing assets within a risk management framework. The Secretary to
the Treasury is directly responsible to the Minister of Finance for the actions of
the NZDMO. The Advisory Board provides the Secretary to the Treasury with
quality assurance of the Mados activities, risk management framework and
business plan.
Over these years NZDMO has undertaken considerable amount of works relating
to analysis and management of the government liabilities within an Asset and
Liability Management (ALM) framework (Anderson 1999). It has developed both
economy wide models and specific models for the management of public debt. In
the wider model, basic objective is to construct a debt portfolio, which aims at
hedging the economy as a whole against shocks to national income or net worth.
It requires information on the nature and degree of private hedging mechanisms,
which are highly dispersed and very expensive to collect. Therefore, NZDMO
concentrates on the management of the government assets and liabilities. It has
improved accounting principles and has adopted generally accepted accounting
and auditing practices.
In recent times, focus has been on maximizing returns and minimizing costs of
assets and liabilities using the modern portfolio theory. In contrast to earlier
works, it does not include physical assets that do not directly produce returns.
The model estimates the relationship between the values of various asserts
classes (e.g. equities, real estate etc,) and various government liabilities (e.g.
debt and the undefended pension liabilities). To reflect the Crowns total portfolio,
the model also includes the measures of the Crowns future tax revenues and
future social expenditure liability.
ALM relates essentially to the management of market risk and derivatives are set
to achieve desired outcomes. On the basis of ALM modeling, NZDMO specifies
30

benchmarks for various sustainability indicators such as ratio of domestic and

external debt, ratio between debts with floating and fixed interest rates, currency
mix, maturity mix, limits on short term debt, interest rates etc. Like many
sovereign debt management agencies the NZDMO is committed to the principles
of transparency, neutrality and evenhandedness in its activities.
B. Australia
The Australian Office of Financial Management (AOFM) established on July 1,
1999 is an independent agency within Treasury and a specialized office to
manage Australian governments debt position (McCray 2000). However, it has
important practical linkages with the parent departments. Its major task is to
identify, measure, monitor and analyze all kinds of risk, particularly market risk,
funding/ liquidity risk, credit risk, operational risk etc.
AOFM recognizes that capital account convertibility and liberalization of trade
and financial flows present both opportunities and challenges for debt
management. Opportunities lie in accessing a truly global and expanded market
for debt with potentially low cost. However, risks arise due to increased financial
market volatility and internationally mobile creditors and investors leading to
vulnerability of debt service costs, market exposures of debt portfolio and
balance sheet net worth.
Australian government introduced accrual budgeting and accounting systems to
tackle risks and contingent liabilities. There is an increasing emphasis on
outcomes-oriented approach to performance reporting, public sector
transparency and accountability, and focus on net worth and risks to net worth. A
comprehensive risk management framework encompassing funding, market,
credit, liquidity and operational risks provide the basis for a coherent and
objective planning for debt. A unique feature of the Australian debt management
is that the basic organizational structure, staffing numbers, skill net, financial
resourcing, delegation powers and accountability arrangements within AOFM had
practically remained unchanged since its inception.
C. United Kingdom
The Government's cash and debt management has traditionally been managed
by Bank of England in the United Kingdom. The Debt Management Review
1995, in a distinctive break from past policy, indicated that debt management was
not a major tool of monetary policy. As a consequence, the Chancellor of the
Exchequer announced that these responsibilities would be transferred to the
Treasury while the operational responsibility for setting interest rates would be
transferred to the Bank of England.

31

Following the above announcement a Debt Management Office was established

on 1 April 1998 as an executive agency of the Treasury, and was given
operational responsibility for debt management, working within a policy
framework set by the Treasury. The Treasury offered three reasons for the
transfer of debt management from the Bank of England to the DMO:
1. The need to prevent inside information, particularly on monetary policy, from
influencing debt management policy. Policy decision and implementation "should
be, and should be seen to be unaffected by short-term monetary policy
considerations. The subsequent decision to establish the DMO as an executive
agency ensured that it did not have advance access to other policy decisions.
2. Possible conflicts of interest between debt management and monetary policy
which could undermine the achievement of the debt management objective of
minimizing the cost of Government financing subject to risk.
3. A need to create a clearer allocation of the responsibilities for debt
management and monetary policy was a "key factor in shaping the new
arrangements".
The primary reasons for the change were the need for debt management to be
seen to be separate from monetary policy, and for accountability and
responsibility for debt management to be crystal clear.
The responsibilities of the DMO are set out in an Executive Agency Framework
document.
This document, inter alia, outlines the aim and objectives,
accountability and relationships with the Treasury, accountability to the
Parliament, preparation of the Annual Report and Accounts, financial
arrangements, staffing, internal and external audit.
The DMO which was established in 1998 continues to operate with the
responsibility of debt and cash management as an executive agency of the
Treasury. Strictly speaking, this is separate from but in a principal-agent
relationship with the Treasury.
D. Ireland
The National Treasury Management Agency (NTMA) in Ireland is an independent
public debt office and is in charge of management of all public debt- either
internal or external and also all contingent liabilities (such as savings schemes of
the government, pension, provident and insurance funds). The benchmarks are
32

designed in consistent with the annual debt-service budget within which the
NTMA has to operate. As such the review of the benchmark is annual and
matches the budget cycle.
NTMA was established in 1990 because it was felt that the executive and
commercial operations of borrowing and debt management required an
increasing level of specialisation and were no longer appropriate to a
Government Department. Also, with the growth of the financial services sector,
the Department of Finance had been losing qualified and experienced staff in the
financial area and it was difficult to recruit suitable staff due to rigid salary
structure. In the NTMA, there was flexibility as regards pay and conditions so that
key staff can be recruited from outside and can be retained; in return there are
assigned clear levels of responsibility and they must perform to these levels.
The NTMA is a State body which operates with a commercial remit outside public
service structures to provide asset and liability management services to
Government. It has evolved from a single function agency managing the National
Debt to a manager of a complex portfolio of public assets and liabilities. The
NTMA does not have a board and it is the Chief Executives statutory
responsibility to carry on and manage and control the administration and
business of the Agency. The Chief Executive is appointed by the Minister for
Finance. The Chief Executive reports directly to the Minister for Finance on the
NTMAs funding and debt management.
At the beginning of the year, NTMA signs a Memorandum of Understanding
(MOU) with the Finance Minister and specifies benchmarks for various
parameters such as extent of internal and external loan, currency mix, maturity
mix, interest rate mix etc. These benchmarks are developed after careful
measurement of various risks such as liquidity, debt refinancing, bunching of debt
service etc. MOF does not interfere with the day-to-day working of the NTMA,
which has distinct front-back-middle-head offices and dealing rooms.
The NTMA attempts to beat the benchmarks in order to take advantage of
favorable market conditions, and by issuing at different maturities within the
broad guidelines regarding proportions of foreign currency and floating rate debt.
The performance of the NTMA is evaluated at the end of the year in terms of
actual and benchmark portfolios and costs. If NTMA performs better than the
benchmarks agreed in the MOU, it retains the profits of debt management.
Over the years, NTMA emerged as a highly technical, efficient and profitable
organization in debt management. Notwithstanding creation of a separate debt
management agency, Ireland is in deep financial crisis and has sought financial
assistance from EU/IMF.
33

E. Portugal
European monetary unification was the catalyst for a thorough restructuring of
public debt management in Portugal. In 1996, Portugal created the Portuguese
Government Debt Agency (IGCP), a separate agency structured according to the
model of a private financial institution. The IGCP is a distinct legal entity created
by a law on management of public debt also lays down fiscal responsibility
measures. All the functions connected with public debt management and State
financing which were formerly split between two different public authorities were
transferred to the IGCP.
The IGCPs structure, functions, powers and accountability are detailed in
delegated legislation. The transition to the IGCP unfolded over three years in
order to avoid disturbances in debt management or in the operation of the
relevant markets. In the first year, 1997, the agency developed its structure,
defined procedures and management framework and transferred the functions of
two different public authorities to the IGCP. The government also promoted new
institutions to market participants.
In the second year, 1998, the internal structure of the Agency was reorganized on
the basis of various operational characteristics inherited from the former
structures in order to streamline the institution.
The last year, 1999, coincided with the joining of the competitive environment
brought out by the introduction of the Euro. IGCP adopted a sophisticated
information system, created a benchmark to evaluate debt management, clarified
its terms of management contract with the Government, crystallized Guidelines
to maintain its autonomy of debt management.
F. Other Selected Countries of EU- Sweden, Denmark and Hungary
The Maastricht Treaty of the European Union set up the framework for the
European Monetary Union, which includes introduction of common currency
the Euro. The Treaty also sets out four convergence criteria to achieve price
stability, fiscal prudence and debt sustainability. These include the following:
(1) Average consumer price inflation should be sustainable and, in the year
prior to examination, should not be more than 1.5 percentage points over
that of, at most, the three best performing countries.
(2) The country should not have an excessive deficit. Prima facie a
governments budget deficit should not exceed 3% of GDP, and
(3) Its debt should not be more than 60% of GDP.
34

(4)

Average nominal long-term interest rates should not exceed, by more than
two percentage points the long-term interest rates of, at most, the three
best performing member states in terms of price stability.

Individual countries within European Union have developed independent debt

management systems and procedures within these broad principles. Several
countries have developed benchmarks for currency composition and maturity mix
of external debt. Institutional constraints that limit influence the benchmarks
include limiting currency composition of foreign debt to that of reserves portfolio
(e.g. United Kingdom) and maintaining a fixed percentage of foreign exchange in
a specific currency such as the ECU to develop debt market of that currency (e.g.
France and Italy).
In Sweden, the benchmark serves as the limit within which the foreign currency
debt may be exposed to currency and interest rate risks. The Sweden debt Office
(SNDO) lays down the risk limits and takes position in the foreign exchange and
bond markets to bring the long-term cost of the debt below that of benchmark
portfolio. The currency composition of the benchmark primarily matches the
weights of the currencies in the ECU basket while US dollar and Japanese Yen
are included in the portfolio for diversification. The SNDO may deviate from the
currency mix benchmark by 3 percentage points, and that for duration
benchmark by 0.5 percentage points. The interest rate structure of the
benchmark is based on diversified borrowing along the yield curve to reduce
shocks to specific parts of the yield curve and to reduce bunching of debt
payments over time.
In Denmark, benchmarks for various indicators and the maximum level of
deviations from the benchmarks are specified.
In Hungary, the debt management office located in the Ministry of Finance is
responsible for servicing the cost of the net sovereign external debt. The
authorities align the currency composition of the external debt through hedging
operations with that of the currency basket to which the national currency is
pegged. Emphasis is placed on lengthening the maturing of the debt, maintaining
more than three quarters of the debt in fixed rate instruments, and evenly
spreading debt redemptions to avoid rollover risks.
G. Brazil
Brazils Public Debt Office (PDO) was set up within the National Treasury
Secretariat in 2000 with a mandate of cost minimization over the long term,
taking into consideration the maintenance of judicious levels of risks. Its
secondary objective was the development of the domestic government securities
market. As discussed below, the PDO was the culmination of fiscal and monetary
reforms in Brazil since the late 1980s.

35

Brazils Central Bank used to manage public debt until 1987. The Brazilian debt
crisis in the ring early 1980s forced several reforms of public finance institutions.
The National Treasury Secretariat (NTS) was created in 1986, domestic debt
management was transferred from the Central Bank to the Treasurys debt unit
(CODIP) in 1987 and the Federal Constitution forbade the Central Bank in 1988
from buying treasury bills in primary auctions.
In the early 1990s, Brazil took steps to further segregate the operation of fiscal
and monetary policies. In 1991, the External Debt Office was established in NTS.
Over the next few years, the Treasury focused on internal research, data
collection, staff-replacement and training, and building relationships with
investors and rating agencies.
In 2000, the Public Debt Office was established in the NTS. External debt
management was transferred to the PDO. The PDO dissolved the division
between domestic and external debt management, and adopted a front, middle
and back office structure. The restructured PDO aimed to consolidate custody
and settlement of securities, focused on building state-of-the-art risk
management models and adopting the ALM framework.
The PDO emphasized staff training and retention scheme and introduced flexible
salary scales for its staff.
H. India
The debt management structure in India is almost similar to that of Bangladesh.
The debt management functions are performed by various agencies including the
Reserve Bank of India and the Ministry of Finance. However, for many years the
Government of India is trying to establishment of a Consolidated Debt
Management Office.
At the beginning of 1990s India faced an unprecedented foreign exchange crisis.
Indias foreign exchange reserves declined to one billion US dollar which was
sufficient to finance only two weeks requirements of essential imports.
International credit rating agencies downgraded Indian scrips and put India in the
no investment grade. Non-residents Indians also lost their confidence on the
Indian economy and started withdrawing their deposits at a faster speed,
The then government took a number of reforms in the domestic economy. The
government also set up a middle office on external debt management for risk
management for external debt. For greater transparency and dissemination of
information in order to encourage public debate and research on external debt,
government proposed to place copies of quarterly and annual reports on
management of external debt on the table of both houses of Parliament.
Accordingly, an External Debt Management Unit (EDMU) was set up in the
Economic Division of the Ministry of Finance.
36

Functions of the EDMU have expanded over the years. Now India is trying to set
up a full fledged Public Debt Management office combining both external debt
and domestic debt. DMO has taken some concrete steps in this direction. The
Finance Minister had stated in the Union Budget for 2007-08 that world over debt
management is distinct from monetary management. The establishment of a
Debt Management Office (DMO) in the Government has been advocated for
quite some time. The fiscal consolidation achieved so far has encouraged the
Government to take the first step. Accordingly, he announced setting up of
autonomous DMO. However, in the first phase- a Middle Office for debt
management -should be set up to facilitate the transition to a full-fledged DMO.
Following this announcement, the Middle Office was established in September
2008 in the Ministry of Finance. The Middle Office would be merged into the Debt
Management Office (DMO), when it is established. The responsibilities of the
Middle Office include the following:
a. Pilot the evolution of the legal and governance framework appropriate to
an independent debt office
b. Formulation of a long term debt management strategy consistent with
sustainability requirements
c. Formulation of annual debt issuance strategy and periodic calendars of
borrowing
d. Forecasting cash and borrowing requirements
e. Formulation of a comprehensive risk management framework
f. Ensuring compliance to debt/cash management policy, strategy and risk
guidelines
g. Developing and maintaining a centralized database on Government
liabilities
h. Dissemination of debt related information to the public
i. Presently, these functionalities will be undertaken by the Middle Office in a
phased manner to ensure a smooth transition from the existing
arrangements.

37

Selected References
Australia: Debt Management Office, URL http://www.aofm.gov.au/.
Brazil: Debt Management Office, URL http://www.stn.fazenda.gov.br.
Bangladesh, Government of the Peoples Republic of (2013) Flow of External
Resources into Bangladesh, Economic Relations Division, Min of Finance, 22 Jan 2013.
Bangladesh, Government of the Peoples Republic of (2012) Allocation of Works of
the Finance Division, Ministry of Finance, Finance Division, 2012.
Das, Tarun (2010) External Debt Management in Maldives- Policies, Strategies, Legal
Framework and Institutional Set Up, pp.1-60, Asian Development Bank & the Ministry of
Finance and Treasury, Male, Maldives, December 2010. www.scribd.com/tarundas/
Das, Tarun (2008a) External Debt Management in Uzbekistan- Policies, Strategies,
Procedures, Legal and Institutional Set Up, pp.1-45, World Bank Country Office,
Uzbekistan, Tashkent, November 2008. www.scribd.com/tarundas/
Das, Tarun (2008b) External Debt Sustainability Analysis for Gambia- Trends and policy
issues, pp.1-40, Commonwealth Secretariat, London, August 2008.
www.scribd.com/tarundas/
Das, Tarun (2006a) Management of External Debt-International Experiences and Best
Practices, pp.1-46, Best Practices Series No.9, UN Institute for Training and
Research (UNITAR), Geneva, 2006. www.scribd.com/tarundas/ and
www2.unitar.org/dfm/Resource_Center/Bestpractices/bps.9/
Das, Tarun (2006b) Governance of Public Debt- International Experiences and Best
Practices, pp.1-44, Best Practices Series No.10, UN Institute for Training and
Research (UNITAR), Geneva, 2006. www.scribd.com/tarundas/ and
www2.unitar.org/dfm/Resource_Center/Bestpractices/bps.9/
Das, Tarun (2006c) Report on Workshops on Capacity Building on Debt Management
in the Era of Globalization in Cambodia, India, Nepal, Lao PDR and Samoa, pp.1-45,
UN-ESCAP, Bangkok, May 2006. www.unescap.org/pdd/debt/workshop/
Das, Tarun (2005a) Sustainable external debt management- International Best
Practices, pp.1-46, UN-ESCAP, Bangkok, Sep 2005. www.scribd.com/tarundas/
Das, Tarun (2005b) Management of external debt in India and lessons for developing
countries, pp.1-15, UN-ESCAP, Bangkok, July 2005. www.scribd.com/tarundas/

38

Das, Tarun (2003a) Management of Public Debt in India, pp.85-110, in Guidelines for
Public Debt Management: Accompanying Document and Selected Case Studies, 2003,
IMF and the World Bank, Washington D.C. www.scribd.com/tarundas/
Das, Tarun (2002) Management of Contingent Liabilities in Philippines- Policies,
Processes, Legal Framework & Institutions, pp.1-60, World Bank, Washington, 2002.
Das, Tarun; Raj Kumar, Anil Bisen and M. R. Nair (2002) Contingent Liability
Management- A Study on India, pp.1-84, Commonwealth Secretariat, London.
Das, Tarun (2003b) Off budget risks and their management, Part-2, Chapter-3, Public
Expenditure and Financial Management Review, Report No. 24256-PH, Joint
Document of The Govt of the Philippines, World Bank and ADB, World Bank
Philippines Country Office, April 30, 2003.
Das, Tarun (2000) Sovereign Debt Management in India, pp.561-579, in Sovereign Debt
Management Forum: Compilation of Presentations, November 2000, World Bank,
Washington D.C. www.scribd.com/tarundas/
Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External Debt
Management, pp.77-95, in External Debt Management, ed. by A. Vasudevan, RBI,
Mumbai, April 1999.
Das, Tarun (1999b) Fiscal Policies for Management of External Capital Flows, pp. 194207, in Corporate External Debt Management, edited by Jawahar Mulraj, CRISIL,
Bombay, Dec 1999
Government of India (2008) Report of the Internal Working Group of Debt
Management, pp.1-130, Department of Economic Affairs, Ministry of Finance, New
Delhi, 31 October 2008.
Hungary. Debt Management Office. URL http://www.akk.hu
Islam, Md. Ezazul and Bishnu Pada Biswas (2006) Public Debt Management and
Debt Sustainability in Bangladesh, pp.1-21, Policy Analysis Unit, Bangladesh Bank,
December 2006.
International Monetary Fund (2012) Evolution of Debt Sustainability Analysis in Low
Income Countries- Some Aggregate Analysis, Working Paper WP/12/167, pp.1-56, by
Benedicte Baduel and Robert Price, IMF, Washington D.C., 2012.
International Monetary Fund (2011) Bangladesh Staff report for the 2011 Article IV
Consultation - Debt Sustainability Analysis, pp.1-13, IMF, Washington D.C., 2011.
International Monetary Fund (2003) External Debt Statistics- Guide for Compilers and
Users, IMF, Washington D.C., 2003.
International Monetary Fund and World Bank (2012) Medium Term Debt
Management Strategy- The Analytical Tool: User Guide, pp.1-37, Washington D.C., May
2012.
39

International Monetary Fund and World Bank (2012) Revisiting the debt sustainability
framework for low income countries, pp.1-70, Washington D.C., 12 January 2012.
International Monetary Fund and World Bank (2008a) Developing Medium Term Debt
Management Strategy (MTDS)- Guidance Note for Country Authorities, pp.1-46,
Washington D.C., 9 October 2008.
International Monetary Fund and World Bank (2008b) Medium Term Debt
Management Strategy (MTDS Analytical Tool User Guide, pp.1-41, Washington D.C., 9
October 2008.
International Monetary Fund and World Bank (2007) Strengthening debt
management practices: Lessons from country experiences and issues going forward,
Washington D.C. March 2007.
International Monetary Fund and World Bank (2003) Guidelines for managing public
debt, Technical Report, World Bank Treasury, 2003.
International Monetary Fund and World Bank (2002) Guidelines for managing public
debt: Accompanying document, Technical report, World Bank Treasury, 2002.
Ireland: Debt Management Office. URL http://www.ntma.ie.
Ireland, Government of (1990) National Treasury Management Agency Act,
Government of the Republic of Ireland, 1990.
Jensen, Fred (2000) Trends in sovereign debt management in IBRD countries over the
past two years, pp.14-25, in Sovereign Debt Management Forum: Compilation of
Presentations, November 2000, World Bank, Washington D.C.
New Zealand. Debt Management Office. URL http://www.nzdmo.govt.nz/.
Phillip, Anderson; Anderson Caputo Silva and Antonio Velandia-Rubiano (2010),
Public Debt Management in Emerging Market Economies: Has This Time Been
Different?, World Bank Policy Research Working Paper, No. WPS 5399, 2010.
Portugal, Government of (1998) Law No. 7/98 (Law on Public Debt Management),
Government of Portugal, 1998.
Sullivan, Paul (2000) The design and use of strategic benchmarks in managing risk,
pp.175-191, in Sovereign Debt Management Forum: Compilation of Presentations,
November 2000, World Bank, Washington D.C.
Sweden, Government of (2007) Ordinance containing instructions for the National Debt
Office, Government of Sweden, 2007.
Sweden, Government of (1988) Act on Central Government borrowing and debt
management, Government of Sweden, 1988.
UNCTAD (2009) Debt Sustainability Analysis- E-Learning Training Course, pp.1-89.

40

United Kingdom: Debt Management Office (2005) Executive Agency Framework

Document, Government of United Kingdom, 2005.
UN Economic and Social Commission for Asia and Pacific (UN-ESCAP) (2006)
Manual on Effective Debt Management, pp.1-118, UN-ESCAP, Bangkok, 2006
www.unescap.org/pdd/publications/debt-manual/
Wheeler, Graeme (2004) Sound Practice in Government Debt Management, World
Bank, Washington D.C., 22 April 2004.
Wheeler, Graeme (1996) New Zealands Experience With Autonomous Sovereign Debt
Management, pp.1-18, NZDMO, November 1996.

World Bank (2009a) Guide to the Debt Management performance Assessment

(DEMPA) Tool, Revised, pp.1-47, Economic Policy and Debt Department (PRMED),
Banking and Debt Management Department (BDM), World Bank, Washington D.C.,
December 2009.

World Bank (2009b) Debt Management performance Assessment (DEMPA) Tool,

Revised, pp.1-47, Economic Policy and Debt Department (PRMED), Banking and Debt
Management Department (BDM), World Bank, Washington D.C., December 2009.
World Bank (2007) Managing Public Debt: From Diagnostics to Reform Implementation,
World Bank, Washington D.C. 2007,
World Bank and International Monetary Fund (2009) Managing Public Debt:

Formulating Strategies and Strengthening Institutional Capacity, pp.1-145, Approved by

Danny Leipziger, Kenneth Lay, and Christopher Towe, World Bank and IMF, Washington
D. C., February 24, 2009.
World Bank and International Monetary Fund (2009) Developing a Medium-Term

Debt Management (MTDS) Guidance Note for Country Authorities, pp.1-56, World Bank
and IMF, Washington D. C., February 24, 2009.
World Bank and International Monetary Fund (2007) Strengthening Debt
Management Practices: Lessons from Country Experiences and Issues Going Forward,
pp.1-114, Prepared by the Staff of the World Bank and the IMF, Approved by Kenneth
Lay, Danny Leipziger and Jaime Caruana. Washington D.C., March 27, 2007.

41