The Government successfully borrows in the domestic market: how to optimize this process and to reduce Debt Management

Costs

Erika Latyšovič, Principal AuditorNational Audit Office of Lithuania

2011-06-10 INTOSAI PDWG Meeting

Structure of the debt on behalf of the State by measures of borrowing,

in per cent

Audit objective – to assess the efficiency of the management of GS issued in domestic market

Assessment criteria:

• Compliance with legislation regulating the issuance of GS in domestic market

• Comparison of the management measures for GS issued in domestic market applied in Lithuania with provisions of PDM guidelines defined by IMF, the WB, INTOSAI PDWG and the best foreign practice

Audit Objectives and Assessment Criteria

Audited period: 2006-2009; in some cases data of 2010 was used for comparison

Audit methods:

• Analysis of content and application, and data analysis

• Meetings, interviews, surveys – MoF, Stock Exchange, Central and Commercial banks

• Data verification, checking, reviewing, comparison

Audit Scope and Methodology

Public Debt Management Strategy

does not stipulate what share will be borrowed in the domestic market

does not provide for an aim to develop and maintain the efficient and liquid domestic market

Recommendation for the Government:

Strategy should foresee the following as one of its main objectives: to develop and maintain the efficient and liquid GS domestic market, as well as to set detailed measures for implementation of this objective

Planning of borrowing in the domestic market

MoF announces insufficient information about the planned borrowing in the domestic market. Planning process of the borrowing is to be improved

Preliminary annual calendars for issuing of GS in the domestic market are not approved and not made publicly available

MoF didn’t often follow the self-established borrowing programmes and calendars

Issuance of GS in the domestic market

Debt management operations in the domestic market are not sufficiently transparent, regular and predictable

The MoF systematically cancelled previously announced auctions in 3rd-4th quarter of 2006-2009

The issuance of GS and terms to maturity were not always closely connected to the need for money on respective days

The MoF does not analyze / use auction evaluation indicators, which show the interest of investors in securities with various maturities

Recommendations for Ministry of Finance

• To establish preliminary annual predictable and regular calendars for issuance of TB and bonds, and make them publicly available

• To take into consideration the dynamics of fluctuation of the State Budget revenue and expenditure when planning the annual borrowing

• To analyze / use auction evaluation indicators when making decisions on maturity of GS

Information about the Issuance of GS through Auctions

Insufficient information is announced in quarterly auction calendars

The MoF does not announce the amount of the GS issue

The MoF follows the best practice and reopens issues to ensure the liquidity of GS, however it does not disclose data about it

Recommendations for Ministry of Finance

• To announce more detail information in quarterly calendars for issuance of GS

• To indicate the amount of GS issue in the announcement to issue GS

• To make publicly available auction evaluation indicators and their analysis

• To announce data on the reopened issues during the year

Auction Participants

Lack of regulation about non-competitive bids

No minimum / maximum amount is set for one auction participant / investor to purchase during one auction

Lack of understandable information to potential investors

The MoF does not own information, nor does it communicate with final investors

Recommendations for Ministry of Finance

Thank you for attention