Money Theory and Monetary Policy Department
Poland
Government debt management
- institutional arrangements in selected countries and in Poland
JEL Classification Number: H63
Keywords: government debt management, institutional
arrangements, pubic debt management agency
Corresponding Address:
Kamilla Marchewka-Bartkowiak, PhD - tel. +48 603 136 765,
e-mail: kamilla.bartkowiak@ue.poznan.pl
Introduction
Government (public) debt management is today one of the most important areas of public finance reforms in most countries in the world. Especially intensive changes have been taking place in the European Union member states. The process gathered momentum after 1999, with the creation of the Economic and Monetary Union (EMU). Major international institutions, such as the International Monetary Fund, the World Bank, the OECD, or the European Central Bank have been quite emphatic about the importance of government debt management worldwide. They release regular reports on each state’s developments in public debt management, issue guidelines on the fundamentals of government asset and liabilities management policy making, promote publications and analyses on public debt management quoting experiences of selected countries.
One of clue areas of undertaken reforms was the institutional arrangement of government debt management and the direction to change the central banking or ministerial model into the public agency model.
Polish reforms of public
debt management go back in principle to the early 1990s. The reforms have affected the majority of functions of this section of
budget policy, changing the statistics, accounting, and operations, as well as
organisational framework of the Treasury securities market. Public management
reforms undertaken in Poland have resulted to a large extent from a negative
dynamics of budgetary indicators and the necessity of adjusting to the European
Union standards. However, there are still significant barriers of institutional
and also political character, which in the future can make government debt
management and budget objectives difficult to achieve.
Government debt management – definition and functions
In a traditional aspect public finance policy is
divided into monetary policy (money) and fiscal policy (income and expenses).
The main criteria of the division is the realized aims, institutional solution,
fulfilled functions and range of utilised instruments.
The above determinants influence the differentiation
between the two mentioned areas of public operations. They currently have a
significant meaning in marking off the public debt management policy.
The analysed financial field can be considered microeconomic
aspect through institutional and operational research as well as macroeconomic
aspect through researching the impact of an established way for the government
budget indebt management on government decisions, central bank and other
entities.
The International Monetary Fund and the World Bank
define public debt management as a process of realizing adequate worked out
strategies for obtaining appointed amount of funds and reaching the goals
associated with debt cost and risk, as well as fulfilling goals through
development and maintaining profitable and liquid public security market[1].
In the OECD publications public debt management is
defined as a degree of realizing four
categories of goals, which are as follows: fulfilling the public lending needs,
minimising debt servicing costs, upholding all kinds of risk on acceptable
level and the development of internal capital market[2].
Public debt management realizes public assumptions
set, therefore it is also classified as part of the government budget policy.
In
this aspect the main goals of government debt management, concerning mainly the
level of financing the shortages in the budget planned by the government in a
given year (or in a long term prognosis), are defined by respective government
departments (The Ministry of Finance, The Treasury).
It has to be underlined at this point that the level
of the capability to be indebted by a government can be limited by conditions
of higher institutions (international) as it is the case in Economic and
Monetary Union - EMU (budget deficit and the public debt criteria – Maastricht
Treaty[3]
and Stability and Growth Pact[4]).
Adequate government institutions (The Ministry of
Finance, The Treasury) can put up limits (level of tolerance) in cost scale, or
risk in servicing public debt (New Zealand for example). However, the above
goals are frequently set according to suggestions laid by the government debt
management institutions. In this case there are different Committees
(strategic, management risk etc) internally established to deal with the matter
and are responsible for formulating strategies in various areas of
institutional activities or a group of consultants consisting of representatives of indicated institutions,
ministries, parliament, private sector or academicians who meet periodically to
advise and suggest on policy formulation. An example of the first
organizational solution whose role is among others to formulate and set debt
management goals is the Belgian Strategic Committee, consisting of the
following: The Treasury Administrator General, representatives of the Ministry
of Finance and directors of three Directorates of public debt agency. Groups of
consultants also function in such countries as Australia, France, Ireland, the
United Kingdom and New Zealand.[5]
In as far as market operational goals are concerned,
the most common strategy and procedure are set by the management itself. This
applies to the amount of public debt servicing costs as well as implementing
appropriate assumptions concerning policy about different types of risks, which
may appear in a stated period. Above all detailed goals about the functioning
of public securities market are defined.
The market characteristics of the government budget
financing, especially the increasing role of risk management in public
portfolio instruments forces the necessity of providing control and auditing
operations. In case of public debt servicing risk, the management institution
undergoes an operation based on multi-criteria analysis of factors determining the
change. Controlling the appropriate choice of risk estimation methodology,
realization of established procedures and respecting set limitation, at the
same time know-how among the management workforce on how to utilize optimal
solutions in the topic, although it is a basic element of the process
management in case of public finance it should undergo comprehensive
monitoring.[6]
The achievement of adopted public debt management
goals for a year or longer term basis must be depended not only on high level of
financial reports, but on evaluation which has to guarantee indispensable
transparence, thereafter creditability of the stated policy.
From the entity’s point of view, the verification
indicated should be carried out at a number of levels: by the government
(stating the goal), in internal operation of the public debt management
institution (stating and realizing the goals) and through an external,
independent organization (state control department or an auditing company).
From the subjective point of view it should cover action in the institutional
and functional control as well as external and internal audit.[7]
Currently, the importance of an autonomy in public
debt management institution is underlined, due to participating on equal rights
basis in the financial market. Great attention is paid to issues concerning
political and operational independence which would guarantee the highest degree
of realization of goals and public debt management strategy in the medium and
long term.
Taking into consideration the latest tendency
concerning institutional solutions of public finance, it is proved that public
debt management is activated by and put into force legally and carrying out its
responsibilities and function for the government. It realizes ready made internal
goals and strategies through market operations.
The most important functions of government debt
management covers two types of fields laid out in below table.
Table 1. Functions of government debt management
|
Policy formulation and
planning function |
Public securities
market organization function |
|
· accomplishment of the established
policy through target formulation, instrument adjustment, coordination of
monetary policy and approbation of public indebtedness, · planning, including forecasting
future public lending needs and formulating programs of their financing, · fiscal function, within liquidity
management of the government budget including future money flows forecast, · advisory function. |
·
organising and
managing the primary market, ·
issuing
function, i.e. organising and selecting issuing procedures, ·
organising
secondary market through expanding its liquidity and depth, ·
administrative
function (settlement and deposit). |
Source: Based on
L. Kalderen, Debt Management Functions and Their Location, V. Sandararajan,
P. Dattels, Public Debt and Monetary Management in Transition Economies
in: V. Sandararajan, P. Dattels, H.J. Blommenstein, Coordinating Public Debt
and Monetary Management, IMF, 1997
Principles and
characteristics of the above mentioned functions of public debt management pay
attention to what has been formulated by the World Bank and the International
Monetary Fund publications on the topic[8],
where these international institutions, basing on experiences of member
countries, also present propositions of applying clear control and monitoring
policy as well as annual external audit[9].
It is observed that the
identification of the problem which should be in the competence range of public
debt management has an essential meaning when identifying external and internal
formula (model) of the institutional organization of the public debt
management. Therefore, taking into consideration the optimal quartering of
functions within the given institution, a division is proposed below[10]:
• financial source mobilization function – all operations dealing with drawing up and implementing plans of financing budget deficits on both domestic and foreign markets are involved in this range,
• indebtedness and risk analysis
function – covering portfolio analysis of owing instruments, risk management
strategy and financial indebtedness scenery formulation, as well as identifying
and valuating benchmark portfolio,
• information and settlement system management function.
The above study clearly
emphasizes the classification of functions usually used by financial
institutions dealing with market operations. In their scope of operation
additional tasks in form of controlling appear.
The accession to the European Union intensified public
debt reforms in respect of both the policy and the necessity to adjust the
Treasury securities market infrastructure. The subsequent changes will be
determined for the most part by the development of public debt management in
the countries of the old EU which have been at the forefront of this field, and
the extent of the reforms effected by other Central and Eastern European
countries, including their consecutive accessions to the Economic and Monetary
Union (EMU).
The underlying problem in
all the member states is posed by the increasing investor pool and reducing
investment activities risk on the Treasury securities market. High government
borrowing needs that predominate in most EU countries contribute to a high
level of competition and constantly introducing new management and market
solutions. In the Economic and Monetary Union member countries, where the
interest rates are similar (the EBC reference rates) activities of a nature
other than the price are of a special importance.
The most notable issues
which will require the EU public debt managers to constantly modify the various
areas of their responsibility include:
-
changes in the portfolio with more emphasis on
investor preferences,
-
the development of methods of optimising
Treasury securities portfolio and risk analysis and forecasting methods,
-
the modification and development of issuance
methods,
-
improved information policy and investor
relations,
-
development of the geographical range and
distribution channels of Treasury securities,
-
increased use of operations on debt components
and derivatives,
-
increased efficiency of settlement system,
-
minimisation of participation costs for
investors in the primary and secondary
Treasury securities market (i.al. intermediary costs),
-
the introduction and developments of various
segments of the secondary Treasury securities market,
-
and the introduction of and/or development of
the agency model of public debt management institutional framework,
Institutional arrangements of government debt management
Generally accepted
formulation – government debt management institution – applies to the
principles of the functioning of world institutional models. Taking into
consideration the evolution and experience of different countries, three main[11]
solutions in the researched field could be observed:
• ministerial model:
-
debt management functions are situated in the
government ministerial structure (in one or more departments),
-
debt management objectives are indicated and
realized in budget goals,
• banking model:
-
debt management function are within the range
of the central banking structure,
-
public debt management (objectives, strategy,
operations) are subordinate to overriding monetary objectives,
• agency model:
-
public debt management function are concentrated
in one independent institution or within the structures of other entities,
-
high level of operational transparency
guarantees normalises legal and responsibility range and wide information
policy,
-
operational objectives and debt management
strategy are worked out and realized within an agency under a ministerial
approbation,
-
multi-level auditing and control of agency
operation.
A critical view of the first two models that has
appeared for some time now, mainly concerns dependence of debt management
objectives and strategies on fiscal or monetary objectives, has led to the fact
that practically a mixed model is commonly applied due to the public debt
management status and localization[12]. Institutional solution in analysed countries is
presented in the table below.
|
Status criteria
|
Separate
legal act normalizing functional principles of an independent public debt
management institution (government agency, joint stock company with
government shares) |
Ireland Germany Sweden Hungary |
|
Internal
document stating the status of public debt management agency in a ministerial
structure with a range of responsibilities. |
Belgium France The Netherlands The
UK
Australia New
Zealand |
|
|
Separating
a department concentrating on public debt management function |
Denmark
Finland
Italy Poland Slovenia Spain Japan |
|
|
Lack
of public debt management department |
Canada |
* bold – EU
countries
Source:
Based on information from the selected countries
The least effective of all is placing individual basic
public indebtedness management function in different institutions – ministry,
central bank, commercial banks and others. Decentralization usually concerns
tasks connected with domestic and foreign debt management, government budget
liquidity management, management of other government obligations, issuing
organization, or settlement functions. Therefore, there is need to stress that
concentrating basic operational functions in one separate public debt
management agency is currently both a postulate of international institutions
(IMF, World Bank, OECD) and also a market requirement.
After analysing the
specification in table 2, a straight forward way can be established regarding
the domination of the agency model (table 3 – the agency model in selected EU
countries). Localization agency in an overriding institution (ministry, central
bank), or in a different building (city) seem to have less meaning. For
participants of the capital market, a distinct status for public debt
management institution is an information of great importance. It creates a
basis for a greater respect among investors in as far as operational
effectiveness is involved and transparency in realized policy.
In the analysed countries, ten of them have agencies whose function is based on distinct legal records, stating their form, scope of responsibility and hierarchy. In four cases – Ireland, Sweden, Germany and Hungary- there are institutions which are separately located, in which the first two have a government agency nature, the rest are public stock companies.
Denmark[13] is a specific case where the transferring of tasks concerning
government indebtedness management in 1991 from the ministry of finance to the
central bank took place due to recommendations from the government auditors.
They postulated the change taking into consideration the necessity of strict
coordination between currency reserve management and government foreign debt. Apart from that, attention was paid to
the benefits of the specialized personnel and a wide access as well as well
organized market operations conducted by the central bank. Currently, emphasis
is clearly laid on the meaning of formal and informal coordination principle
between debt management and monetary policy in Denmark, as well as high degree
of transparency in the conducted policy, based on large, evident and frequent
information, detailed reporting and operations in the control and audit scope.
The mixed model
also points at other additional solutions which are due to a negative
assessment. One of the examples is Canada, where public debt management is
under the Department of Finance without a clear separation within the ministry
of finance structure. On the other hand the Polish example can be applied due
to an especially separated Public Debt Department, which does not concentrate
on basic public debt management tasks. Decentralization deals with the division
of functions in domestic and foreign debt management, liquidity or contingent
liabilities management within different ministerial departments.
To sum up it can be stated that
public debt management agency has become a modern standard government
institution on a world scale and in EU countries.
Table 3. Government
debt management agency model in selected EU countries
|
Country |
Name of agency |
Date of establishment |
|
Sweden |
Swedish National Debt Office |
1789 |
|
The Netherlands |
Dutch State Treasury Agency |
1841 |
|
Ireland |
National Treasury Management Agency |
1990 |
|
Belgium |
Belgian Debt Agency |
1998 |
|
The
UK |
UK Debt Management Office |
1998 |
|
Germany |
German Finance Agency |
2000 |
|
France |
Agence France Trésor |
2001 |
Source: Based on
information from the selected countries
The case of Poland[14]
Poland is still one of the
EU country with the ministerial model of government debt management but with
separated department.
Generally, pursuant to the
stipulations of the Acts on public finance and earlier regulations, the Finance Minister as the Treasury agent is responsible for managing the State
Treasury debt, as well as issuing Treasury securities. His duties also include
controlling the state of public debt, and controlling the public finance
sector’s compliance with the annual debt limits. According to the last Act the Finance Minister’s main tasks
include undertaking legal and actual activities aimed at raising funds to
finance the state budget borrowing needs, servicing the State Treasury
liabilities resulting from issued securities, and contracted loans and credits, as well as managing the state budget’s
liquidity and the State Treasury financial assets.
Due to
the fact that the responsibility for public debt management has been
transferred to the Ministry of Finance (and not the Treasury), a Public Debt Department was established
in 1993 for the first time within the Ministry’s structure. The Department
pursued management objectives concerned with the domestic debt. Managing
foreign debt was delegated to the Foreign Department. Additionally, guarantees and sureties were
assigned to a separate Department of State Treasury Guarantees and Sureties,
which has been operational to date. The division of tasks in the decision
making existed until 1998, when foreign debt policy was consolidated with the
Public Debt Department. Four years later
another reorganisation took place, which lead to the re-emergence of a separate
foreign debt section. Lately a Department of State Assets and Liabilities was
appointed to conduct all of the public debt policy operations (now as Public
Debt Department).
The above analysis of the institutional framework of
the unit directly responsible for public debt management suggests that the
organisational scope is rather volatile, with an ill-matching organisational
and functional structure. The solutions
are in line with the so called ministry model, whose main features are the lack
of differentiating the entity’s status or the scope of its operational
independence (including the institutional one) and a total submission of
management activities to the current aim of budget policy.
With a view to co-ordinating public debt management
with monetary policy the Public Debt Management Committee was set up in 1994 to
act as an opinion making and advisory body. This organ is an important platform
for exchanging opinions between the Ministry of Finance and the NBP, and is
frequently used in the institutional frameworks in many countries around the
world.
Agency model of government administration is now is
one of the standard in government debt management in the many countries,
including euro area. Effective agency solutions is especially noticeable,
including mainly the internal organisational structure fit to market
operations, the scope and type of supervisory activities (internal audit of
public debt management), personnel policy, benefits resulting from focusing the
management of all assets and liabilities of state budget in one unit, the
possibility of conducting management activities aimed at reducing the debt of
other public finance sector entities.
Poland is
facing a challenge posed by the accession to the euro zone. This now
irrevocable decision will have several consequences. The most important ones will be first of all boosted stability
and consistency in pursuing budget policy including government debt and its
cost which is growing component of budget expenditures and deficit. One of the
most important directions is the institutional reform of government debt
management.
Biography
1. Anderson P., Should public debt be managed by a separate agency? in: Government Debt Management: New Trends and Challenges, ed. by M. Willians, P. Brione, Central Banking Publications, London 2006
2.
Currie E., Dethier J-J., Togo E., Institutional
arrangements for public debt management, World Bank Policy Research Working
Papers 3021, April 2003
3.
Dattels P., Public
Debt and Monetary Management in Transition Economies in: V. Sandararajan,
P. Dattels, H.J. Blommenstein, Coordinating Public Debt and Monetary
Management, IMF, 1997
4.
Debt Management and
Government Securities Markets in the 21st Century,
OECD 2002
5.
Government debt management: new trends and challenges, ed. M. Williams, Central Banking Publications, London 2006.
6.
Guidelines for Public Debt Management:
Accompanying Document, IMF and the World
Bank, November 2002
7.
Guidelines for Public Debt Management,
IMF and the World Bank, December 2003
8.
Golebiowski G., Marchewka-Bartkowiak K., Audit
and control in public debt management (Polish version), Working Papers of
National Bank of Poland No 181/204
9.
Kappagoda N., Institutional Framework
for Public Sector Borrowing, UNITAR, Geneva, No 17/2002
10. Maastricht
Treaty, 1992
11. Marchewka-Bartkowiak
K., Government debt management, The scope of reforms undertaken and
constraints on further development in Poland, Better Government Programme,
Ernst&Young 2006
12.
Marchewka-Bartkowiak K., Institutional
aspects of coordination between public debt management and monetary policy
(Polish version), Bank i Kredyt, National Bank of Poland, No 10/2003
13. Marchewka–Bartkowiak
K., Public debt management. Theory and practice in the EU countries (Polish
version), PWN, Warszawa 2008
14. Stability
and Growth Pact (SGP), 1997 (change in 2005)
15. Wheeler
G., Sound Practice in the Government Debt Management, The World Bank,
Washington 2004
16. Williams
M., The growing responsibilities of debt
management offices, in:
Kalderen L., Debt
Management Functions and Their Location, V. Sandararajan, P. Dattels, H.J.
Blommenstein, Coordinating Public Debt and Monetary Management, IMF,
1997
[1] Guidelines
for Public Debt Management: Accompanying Document, IMF and the World Bank,
November 2002
[2] Debt
Management and Government Securities Markets in the 21st Century, OECD 2002,
p. 51
[3] Maastricht
Treaty, 1992
[4] Stability and Growth Pact (SGP), 1997 (change in 2005)
[5] K. Marchewka-Bartkowiak, Institutional aspects of coordination between public debt management and monetary policy (Polish version), Bank i Kredyt, National Bank of Poland, No 10/2003, p. 4-13
[6] More in: G. Golebiowski, K. Marchewka-Bartkowiak, Audit and control in public dent management, Working Papers of National Bank of Poland No 181/204
[7] Ibidem
[8] Guidelines
for Public Debt Management, IMF and the World Bank, December 2003
[9] More on the
topic see: E. Currie, J-J. Dethier, E. Togo, Institutional arrangements for
public debt management, World Bank Policy Research Working Papers 3021,
April 2003
[10] N.
Kappagoda, Institutional Framework for Public Sector Borrowing, UNITAR,
Geneva, No 17/2002
[11] More on this topic see : Marchewka–Bartkowiak K., Public debt
management. Theory and practice in the EU countries (Polish version), PWN,
Warszawa 2008
[12] See
more: G. Wheeler, Sound Practice in the Government Debt Management, The
World Bank, Washington 2004 or P. Anderson, Should public debt be managed by
a separate agency? in: Government Debt Management: New Trends and
Challenges, ed. by M. Willians, P. Brione, Central Banking Publications,
London 2006, p. 79-92, Williams
M., The growing responsibilities of debt
management offices, w: Government
debt management: new trends and challenges, ed. M. Williams, Central
Banking Publications, London 2006.
[13] Debt Management Office
of Danmarks Nationalbank
[14] K.
Marchewka-Bartkowiak, Government debt management, The scope of reforms
undertaken and constraints on further development in Poland, Better
Government Programme, Ernst&Young 2006