1

Macroeconomic and F inan cial Managemen t In stitu te of Eastern and Sou thern Afr ica

An Assessment of the Use and Effectiveness of

CS-DRMS for Managing Domestic Debt in the

MEFMI Region

A Discussion Paper Prepared as Partial Fulfilment of the

Requirement for Accreditation Under the MEFMI

Fellowship Programme

By Lekinyi N. Mollel April, 2015

2

Table of Contents

TABLE OF CONTENTS ..................................................................................................................................... 2

LIST OF TABLES................................................................................................................................................ 3

LIST OF FIGURES .............................................................................................................................................. 3

ACKNOWLEDGMENT ...................................................................................................................................... 4

ABSTRACT .......................................................................................................................................................... 5

ABBREVIATIONS .............................................................................................................................................. 7

1. INTRODUCTION ........................................................................................................................................ 8

1.2 OBJECTIVES OF THE ASSESSMENT ............................................................................................................... 11

1.2 RELEVANCE OF THE STUDY ........................................................................................................................ 12

1.3 ORGANIZATION OF THE PAPER .................................................................................................................... 12

2. BACKGROUND AND LITERATURE REVIEW .................................................................................... 13

2.1 BACKGROUND INFORMATION ..................................................................................................................... 13

2.1.1 Economic Reforms ..................................................................................................................................... 13

2.1.2 Increased public Investments ................................................................................................................. 15

2.1.3 The Global Financial Crisis .................................................................................................................. 16

2.2 DOMESTIC DEBT DEVELOPMENTS IN THE REGION .................................................................................................. 17

2.2.1 Trend of Domestic Debt ............................................................................................................................. 17

2.2.2 Cost and Risks Analysis of Domestic Debt ........................................................................................ 18

2.3 LITERATURE REVIEW .................................................................................................................................. 19

SOURCE: ........................................................................................................................................................... 20

3. ASSESSMENT METHODOLOGY ........................................................................................................... 21

4. FINDINGS AND ANALYSIS .................................................................................................................... 22

4.1 THE EXTENT TO WHICH CS-DRMS IS USED ............................................................................................... 22

4.1.1 Management of Public Domestic Debt .................................................................................................. 22

4.1.2 Functions of Domestic Debt Performed Using CS-DRMS..................................................................... 23

4.1.3 Instruments Managed Using CS-DRMS ................................................................................................ 25

4.2 CHALLENGES IN USING CS-DRMS FOR MANAGING DOMESTIC DEBT ........................................................................ 27

8.3 USERS’ EXPECTATIONS ON CS-DRMS VERSION 2.0 .............................................................................................. 28

5. CONCLUSION AND RECOMMENDATIONS........................................................................................ 30

5.1 CONCLUSION .................................................................................................................................................. 30

5.2 RECOMMENDATIONS ....................................................................................................................................... 31

REFERENCES ................................................................................................................................................... 33

APPENDICES .................................................................................................................................................... 35

APPENDIX I: QUESTIONNAIRE REPONSES ................................................................................................................. 35

APPENDIX II: QUESTIONNAIRE ........................................................................................................................... 37

3

List of Tables TABLE 1: DOMESTIC DEBT COSTS AND RISKS IN SELECTED MEFMI COUNTRIES ........................................................ 19 TABLE 2: MEFMI COUNTRIES RESPONSES ON THE FUNCTIONS AND CATEGORIES OF DOMESTIC DEBT MANAGED

USING CS-DRMS (DEC 2014) ............................................................................................................................. 35 TABLE 3: NON-MEFMI COUNTRIES RESPONSES ON THE FUNCTIONS AND CATEGORIES OF DOMESTIC DEBT MANAGED

USING CS-DRMS (DEC 2014) ............................................................................................................................. 35 TABLE 4: MEFMI COUNTRIES RESPONSES ON THE CHALLENGES, AND UNDERSTANDING AND EXPECTATIONS ON CS-

DRMS VERSION 2 ............................................................................................................................................... 36 TABLE 5: NON-MEFMI COUNTRIES RESPONSES ON THE CHALLENGES, AND UNDERSTANDING AND EXPECTATIONS ON

CS-DRMS VERSION 2 ......................................................................................................................................... 36

List of Figures

CHART 1: TREND OF GOVERNMENT STOCK OF DOMESTIC DEBT (BILLIONS OF TZS) .................... 14

CHART 2: TREND OF DOMESTIC DEBT IN KENYA (BILLIONS OF KES) ........................................... 15

CHART 3: DOMESTIC DEBT IN MEFMI POST HIPCS (PER CENT OF GDP) ..................................... 18

CHART 4: KEY FUNCTIONS OF DOMESTIC DEBT MANAGEMENT (DECEMBER 2014) ...................... 25

CHART 5: INSTRUMENTS MANAGED USING CS-DRMS (END OF DECEMBER 2014) ....................... 27

CHART 6: CHALLENGES IN USING CS-DRMS FOR MANAGING DOMESTIC DEBT .......................... 28

CHART 7: EXPECTATIONS ON CS-DRMS VERSION 2.0 .................................................................. 29

4

Acknowledgment

First and foremost, I would like to give thanks to Almighty God for sustaining and leading me

throughout the entire period of the apprenticeship and preparation of this discussion paper. My

bona fide thanks to my family for their moral and material support as well as their prayers and

acceptance of my long hours of absence during the entire period of the apprenticeship.

I am indebted to the MEFMI Secretariat for giving this opportunity to undergo the apprenticeship

process and considering me for accreditation among many eligible Graduate Fellows. Special

thanks to Mr. Raphael Otieno, the Director of Debt Management Programme at MEFMI for his

guidance during the entire period. I am also deeply grateful to my colleagues at MEFMI,

particularly those in the debt management programme for their moral support during the process.

It is my sincere appreciation of the cooperation received from officials in the debt management

offices of the CS-DRMS user countries in the MEFMI region for completing the questionnaires

that made this assessment successful. I would not be doing justice if I do not recognize the

contribution of the Commonwealth Secretariat for inviting me to the CS-DRMS Training of

Trainers in London, where I met CS-DRMS users and experts from outside the MEFMI region.

Appreciation is extended to Mr. Vikas Pandey who gave his experience, on behalf of COMSEC,

on the use of CS-DRMS in managing domestic debt. Thanks to the participants of the training for

responding to my questionnaire. Sincerely your contribution enriched the findings of this study.

The list is inexhaustible, I just say to them ‘AHSANTENI SANA’ May God Bless You All!

The support from individuals and institutions mentioned above notwithstanding, the responsibility

for the views, and any errors, omissions or misinterpretations in the study remain solely mine.

5

Abstract

Public domestic debt has gained significant importance globally since mid-2000s as a result of

both external and external factors. In the MEFMI region, domestic debt has been increasing in

absolute amounts, as a proportion of total public debt, and as a ratio of GDP. For instance,

domestic debt increased from an average of 12 per cent of GDP in 2005 to 14 per cent by 2011.

The domestic debt is already in the critical range of 15-20 percent of GDP in Malawi, Uganda

and Zambia while Tanzania is also approaching this range.

Among the internal reasons behind the build-up of domestic debt in developing countries,

including the MEFMI region, are: outcome of the reforms geared towards development of the

domestic financial markets as a means of countering the perceived risks associated with external

financing; implementation of monetary policies; and financing of infrastructure projects; and the

relaxed fiscal policies to utilize the breathing space created by external debt reduction initiatives

in 2000s. External factors, included the impacts of the global financial and economic crisis of late

2000s and the recent European debt crisis and to a lesser extent the aid inflows that necessitated

government borrowing to sterilize them.

The general increase in public domestic debt and the associated cost and risks created a need for

effective management of this category of debt using a sophisticated computer based debt

management system. Against this, the Commonwealth Secretariat continued to enhance the

Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) that was

initially developed to address external debt crisis in mid 1980s. This study, therefore, assessed the

use and effectiveness of CS-DRMS (Version 1.3) in managing public domestic debt. A total of 15

CS-DRMS user countries including eight from MEFMI region were assessed through a structured

questionnaire. Views of the Commonwealth Secretariat were incorporated in the assessment.

The assessment found that most of the debt offices are only using the system at minimum level and

in fact parallel databases and records are maintained using other systems. Most of the countries

are only using the system for recording and producing limited reports on debt service forecasts

for treasury bills and bonds. The limited use of the system emanates from inadequate user technical

6

know-how, system capabilities and fragmented institutional framework for managing public debt

in some countries. Deficiencies in managing public domestic debt, particularly, the reporting

features were identified as a major challenge. CS-DRMS also has no features necessary to be used

as a central depository system (CDS), a key function of domestic debt management. It was also

noted that domestic debt issuance (auctions) in most countries is undertaken by central banks

using their tailor made systems. This, is partly attributable to fragmented institutional

arrangement in debt management. The consequence of all these is that domestic debt is not

managed optimally and is characterized by duplication of resources including parallel records in

spreadsheets. Nevertheless, the responses depicted users’ higher expectations on CS-DRMS

version 2.0 released towards end of 2014 which was yet to be adopted in most of countries at the

time of this assessment.

Thus to optimize the use of CS-DRMS for managing public domestic there is a need to address

both technical skills of the debt managers and deficiencies of the system, as well as consolidation

of domestic debt management. Regarding technical skills, COMSEC, MEFMI and countries need

to organize training events (regional and in-country) targeting only domestic debt management

using CS-DRMS rather that combining with external as experience shows that whenever they are

mixed less emphasis is given to domestic debt. Given the increasing trend of domestic debt there

is a need for deliberate acceleration of research and development towards further enhancement

of the domestic debt module of CS-DRMS, by COMSEC, to respond to emerging issues in the

financial markets. Country reforms toward consolidation of debt management functions along the

sound functional units, including consolidation of debt databases, would help to enhance the use

of CS-DRMS in managing domestic debt as an integral of total public debt. Consolidation will

facilitate bringing together domestic and external debt back office functions and adoption of single

system (CS-DRMS) for recording and reporting public debt in totality.

Findings of the study, if adopted, will enhance use of CS-DRMS in managing public domestic debt

in the MEFMI region and improve management of public debt in totality with the ultimate goal of

achieving the public debt management objectives of minimizing government financing costs and

risks.

7

Abbreviations

AFRODAD African Forum and Network on Debt and Development

ATM Average Time to Maturity

ATR Average Time to Re-fixing

BOT Bank of Tanzania

BPM Balance of Payments Manual

CBDMS Computer based debt management systems

CBK Central Bank of Kenya

CDS Central Depository System

CMSA Capital Markets and Securities Authority (of Tanzania)

COMSEC Commonwealth Secretariat

CS-DRMS Commonwealth Secretariat Debt Recording and Management System

DMFAS Debt Management and Financial Analysis System

DSE Dar es Salaam Stock Exchange

FX Foreign Currency

GDP Gross Domestic Product

HIPCs Heavily Indebted Poor Countries

HRT Horizontal Repos Transactions

IMF International Monetary Fund

JCTR Jesuit Centre for Theological Reflection

JSE Johannesburg Stock Exchange

KES Kenyan Shillings

LIC Low Income Countries

MDRI Multilateral Debt Relief Initiative

MEFMI Macroeconomic and Financial Management Institute of Eastern and Southern

Africa

MTDS Medium Term Debt Management Strategy

NDF Net domestic financing

TZS Tanzanian Shillings

WAIR Weighted Average Interest Rate

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1. Introduction

Public domestic debt1 is increasingly gaining importance globally among the emerging markets

and less developed countries since mid-2000s. In the MEFMI region, domestic debt has been

increasing in absolute amounts, as a proportion of total public debt, and as a ratio of GDP. For

instance, domestic debt increased from an average of 12 per cent of GDP in 2005 to 14 per cent

by 2011. The domestic debt is already in the critical range of 15-20 percent of GDP in Malawi,

Uganda and Zambia while Tanzania is also approaching this range.

The trend is not different globally. Ugo Panizza (2008) estimates that over the period 1994-2005,

domestic public debt in the developing countries has increased from 19 per cent of GDP to 23 per

cent. Giovanna et el (2014) also estimated that in Low Income Countries (LICs) domestic debt has

been on the rise, increasing from 12.3 percent of GDP in 1996 to 16.2 percent in 2011, and in both

HIPCs and non-HIPCs, the public domestic debt represented 40 percent of the total public debt in

2011, almost three times the share observed in 1996. This happened while average total debt levels,

including external, were decreasing from 75 per cent to 64 per cent of GDP in these developing

countries. As a consequence, the share of domestic debt over total public debt went up from 30 to

40 per cent. In Mexico, for instance, the share of domestic debt went from 60 per cent of total

public debt in 2004 to 73 per cent in 2007.

The increase in domestic debt was mainly due to new borrowing contrary to that of external debt

that was to large extent due to accumulation of arrears. Both external and domestic factors

contributed to the increase in the domestic borrowing by governments. According to Ugo Panizza

(2008), external factors are the main drivers of the accumulation of public domestic debt in both

emerging market and low income countries. From external factors, the increase in domestic debt

is attributable to either too little foreign aid or too much foreign aid. This is because, developing

1 For the purpose of this assessment, the definition of public domestic debt is adapted from IMF BPM6 (2013) that

defines gross domestic debt, at any given time, as the outstanding amount of those actual current, and not contingent,

liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are

owed to residents of an economy.

9

countries used the domestic debt market only when they did not have access to external resources

or to sterilize aid flows. Other external factors are the impacts of the global financial and economic

crisis of late 2000s and the recent European debt crisis.

Among the internal reasons behind the build-up of domestic debt in developing countries,

including the MEFMI region, are reforms geared towards development of the domestic financial

markets. Countries resorted to develop domestic financial markets as a means to counter the

perceived risks of external financing, implement monetary policies, and finance infrastructure

projects. Other internal factors include the high and volatile domestic interest rates that translated

into higher budget deficits, necessitating rolling over interest payments, and relaxed fiscal policies

especially as a result of the breathing space created by external debt reduction initiatives in 2000s.

Despite the positive impact associated with expansion of domestic debt on economic growth as

found by Isaya et el (2008), this category of debt entails higher costs and vulnerability of

government debt portfolio to refinancing risks, in particular. This is more pronounced in less

developed markets like those in the MEFMI region. According to some countries’ medium term

debt management strategies2, on average, domestic debt has relatively higher weighted average

interest rate (11.6 per cent), and shorter average time to maturity of 2.8 years and average time to

re-fixing of 2.5 years. About 47.6 per cent of domestic debt matures within the next 12 months

(Table 1). These risk indicators, emanating mainly from the short tenors of the domestic debt

instruments and the fact that they are issued at markets conditions, are unfavorable when compared

to those of external debt. This is mainly due to the fact that domestic borrowing is usually on

prevailing market terms which among other things, the investors factor in inflation expectations

and risk premiums as compared to concessional financing from some of multilateral and bilateral

creditors.

2 MTDS for Tanzania, Lesotho, Namibia, Zambia, Malawi, Uganda, Mozambique and Angola

10

Given this general increase in public domestic debt and the associated cost and risks, there has

been a growing need to effectively manage3 this category of debt. This requires among others,

maintenance of a detailed database on domestic debt within the principal debt management entity,

using a sophisticated computer based debt management system (CBDMS) that meets sound

operational, statistical and analytical needs of debt managers and other agencies involved in

elaborating debt strategies. The CBDMS should have abilities to carry out among many functions

the: storage of individual and aggregate data to reasonable detail; analysis of debt statistics;

production of standard and customized reports for analysis and policy formulation; and conducting

sensitivity analysis. This need facilitated development of diverse computer programmes by various

entities. Although there are a number of customized computer software used to manage public, the

Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) and the Debt

Management and Financial Analysis System (DMFAS) have gained popularity globally.

The CS-DRMS has been in use since 1980s in many countries for recording and analyzing public

external debt. However, over the last few years, COMSEC has been emphasizing, as well as

assisting, countries to record domestic debt in CS-DRMS so as to have a common repository of

the Government’s debt portfolio. This translated to continuous revisions and upgrading of the

system in line with new developments in the global financial sector, which has allowed it to

withstand challenging needs and user demands. The latest development saw the release of CS-

DRMS Version 2.0 in September 2014, which embeds enhanced tools for managing risks of the

portfolio, improved accuracy of debt service projections by better alignment of the software to

creditor practices and terms of the debt instruments, as well as rich reporting facilitates (The

Commonwealth, 2014). As at end 2014, two countries in the MEFMI region (Namibia and

Mozambique) had adopted the new version, becoming among the pioneers globally.

Out of 14 Macroeconomic and Financial Management Institute of Eastern and Southern Africa

(MEFMI) member states, eight countries4 are using CS-DRMS in managing their (mainly external)

3 For the sake of this assessment effective debt management refers to the process of establishing and executing a

strategy in order to meet government funding requirements with a view to ensuring that both the level and the growth

of debt are fiscally sustainable. 4 MEFMI member countries using CS-DRMS as at end of 2014 are Kenya, Malawi, Swaziland, Lesotho, Botswana,

Tanzania, Mozambique and Namibia.

11

debts. Nevertheless, fewer countries are using the system to manage domestic debt and to a limited

extent. Some countries in the region are managing this category of debt using software developed

in-house, mostly in Microsoft-excel based spreadsheets. Most of these alternative forms of storing

debt records, were not developed purposely to manage debt and hence have inadequate functional

capabilities to allow sound practices in domestic debt management. As a consequence, countries

have been maintaining duplicate records of domestic debt and in some cases spread across a

number of institutions. In turn, these do not only compromise quality of data, but also resources

duplication, slow processing of data, and inadequate analysis of debt data. These happen despite

the presence of relatively better systems such as CS-DRMS and DMFAS. The duplication of the

databases is also attributable to fragmented debt management functions whereas in most countries,

the central banks manage domestic debt while ministries of finance manage external debts,

It is against this background that this assessment, prompted mainly by observations that in most

countries, the over the shelve CBDMS, particularly CS-DRMS and DMFAS, are not used to

manage domestic debt, was conducted. The findings are meant to shed light on the use and

effectiveness of CS-DRMS5 in managing domestic debt. The assessment found that countries are

using the system at limited level because of its inadequate functional features as well as due to

inadequate skills among the debt managers. Recommendations from this study are expected to

inform further capacity building activities and enhancement of the system with a view to

promoting use of CS-DRMS in managing all categories of domestic debt. The ultimate goal is to

enhance efficiency in domestic debt management.

1.2 Objectives of the Assessment

Since CS-DRMS and its application has evolved overtime in line with technological advancements

and user requirements, there was need to investigate how best the system can be used to effectively

to manage public domestic debt. This study assessed the extent of system usage in managing

domestic debt and evaluated its adequacy in managing domestic debt in line with user

5 This assessment is based on CS-DRMS Version 1.3. This is because by time of data collection only a limited number

of countries globally had already adopted the latest version. For this case some of the recommendations to be drawn

may have already been addressed in CS-DRMS Version 2.0.

12

requirements. The assessment is informed by the findings from the region based on the business

side responses, answered the following specific questions that pertain the objectives of the study:

(i) The extent to which CS-DRMS v1.3 is used to manage public domestic debt.

(ii) The effectiveness of CS-DRMS v1.3 in managing public domestic debt.

The specific questions were meant to ascertain the hypotheses that CS-DRMS is effectively used

by countries and has the necessary features needed for effective management of public domestic

debt.

1.2 Relevance of the Study

The recommendation drawn from the findings are expected to enhance use of CS-DRMS in

managing public domestic debt with a view, among others, to enhancing: provision of accurate,

timely and reliable statistics on public domestic debt; elimination of duplication of resources

(multiple databases and systems); consolidation and analysis of country’s total debt (external and

domestic); and formulation of sound/credible macroeconomic policies. The findings will inform

further improvements of CS-DRMS and designing of customized training programmes. The

individual country’s findings are also expected to inform capacity building interventions by

MEFMI and COMSEC in the respective countries.

1.3 Organization of the Paper

This discussion paper is organized into five main parts: apart from the introduction, the next section

reviews the background information and literature on managing public domestic debt in region.

Part three discusses the methodology used in collecting and analyzing data. Findings are discussed

in Part Four, while the last part concludes the assessment, including summarizing the findings and

drawing recommendations for effective use of CS-DRMS in managing public debt in the MEFMI

region. The questionnaire and its responses are annexed to this study.

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2. Background and Literature Review

2.1 Background Information

The growth of domestic debt in the developing countries, including those in the MEFMI region,

since mid-2000s, is attributable to both internal and external factors. These factors have their origin

in internal economic reforms that improved domestic financial markets; increased demand for

public investments; and global financial crisis and economic recession of late 2000s.

2.1.1 Economic Reforms

Economic liberalization including those related to domestic interest and exchange rate policies

opened doors for developments in the financial sector, a key player in the financial and domestic

debt markets. Particularly, starting early 1990s, most countries in the region embraced regulatory

reforms aimed at developing domestic financial and debt markets. The reforms included

liberalizing financial markets, modernizing the market infrastructure and diversification of

domestic debt market instruments and investor base, as well as modernizing the legal frameworks

governing the financial markets.

Thus, governments started issuing market based financing securities, mainly Treasury bills and

bonds. In most of the countries, the investors responded positively. In addition to financing primary

deficits, domestic debt has also been used to implement monetary policies. While Botswana and

Uganda, for instance, have been issuing domestic debt for monetary policies only for quite a long

time in 1990s and 2000s, Lesotho, in early 2010s, issued some instruments of domestic debt mainly

to develop financial and debt market.

In Tanzania, the remarkable reforms followed enactment of the Banking and Financial Institutions

Act of 1991 that among others aimed at developing the financial markets. In the aftermath, the

Bank of Tanzania launched 91-day Treasury bills auctions to finance short-term government

deficit, implement monetary policy, and as a reference point of the determination of market interest

rate (AFRODAD, 2013). More developments in the markets followed including launch of 35-days

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Treasury bills in 1993, 182-day and 364-days Treasury bills in 1994, and 2-year Treasury bonds

in 1997. These were followed by establishment of Capital Markets and Securities Authority

(CMSA) in 1997 to promote and regulate capital markets operations, and Dar es Salaam Stock

Exchange (DSE) in 1998 to provide a platform for secondary trading. Milestone developments

took place in 2002 following introduction of medium-term Treasury bonds (5, 7 and 10-years) and

the 15-year Treasury bonds introduced in 2014. The Government listed the medium to long-term

bonds in DSE, though secondary trading has not been active due to buy and hold strategy of

investors. These developments manifested to increase in domestic borrowing. The domestic debt

therefore grew from TZS 980.1 billion in 2003/4 to TZS 9,535.5 billion in 2013/14 (Chart 1). On

average about 99 percent of Government domestic debt in Tanzania was issued through the market,

which is partly attributable to the reforms implemented since early 1990s.

Chart 1: Trend of Government Stock of Domestic Debt (Billions of TZS)

980.1 1073

1761.62049.7 2048.7

2262.3

2772

3734.54172.4

5640.4

6535.5

Source: Bank of Tanzania (MER June 2014)

In Kenya, Horizontal Repos Transactions (HRT) platforms were adopted in 2008 to enhance

liquidity distribution across the financial system. This was followed by the Automated Trading

Systems that was adopted in 2009 to improve efficiency and safety of secondary trading for bonds.

Action based offers through issuance method and pricing has promoted price discovery which is

crucial for market development. Pension and Insurance reforms created demand for long term

15

bonds. The reforms implemented during period starting in 2008 coincided with increased domestic

borrowing by Government to mitigate the impacts of the global financial crisis and the thrust to

finance infrastructure projects. Consequently, government domestic debt grew from KES 430.6

billion by end of 2008 to KES 1,284.3 billion as at end of June 2014, of which the securitized debt

accounted for an average of about 97 percent (Chart 2).

Chart 2: Trend of Domestic Debt in Kenya (Billions of KES)

268.35 289.52 302.25349.72

402.92 427.23511.62

640.64753.00

848.80

1,040.27

1242.4

21.03 16.71 13.328.12

1.773.38

6.73

18.14

11.22

10.03

10

41.9Gov't Securities Others

Source: Compiled from CBK Publications

These reforms unlocked private sector resources to finance governments’ budgetary operations

that were initially financed largely externally. These therefore translated to the build-up of

domestic debt in the region.

2.1.2 Increased public Investments

The period since 2000 witnessed greater appetite for public investments, targeting poverty

reduction and in developing countries most of them linked to attainment of millennium

development goals by 20156. To accelerate progress in attaining the millennium goals, the G8

6 The Millennium Summit of the United Nations in 2000 identified eight (8) goals to be achieved by 2015. The goals

were: to eradicate extreme poverty and hunger; to achieve universal primary education; to promote gender equality

and empower women; to reduce child mortality; to improve maternal health; to combat HIV/AIDS, malaria and

other diseases; to ensure environmental sustainability; and to develop a global partnership for development.

16

countries agreed in June 2005 to provide resources through cancellation of debts worth between

US$ 40 and US$ 55 billion owed to the World Bank, International Monetary Fund and African

Development Bank. Nevertheless, the freed up resources were not adequate in financing

attainment of the millennium goals and governments resorted to borrowing to supplement these

resources. External sources have volatile, procyclical, and subject to sudden stops (Calvo, 2005),

compelling governments to increase dependence on domestic borrowing as source of development

financing. The significant decline of external sources, mainly from bilateral, multilateral and

concessional sources, heightened after the global financial and economic crisis (OECD, 2014; and

AFRODAD, 2011).

This happened during the era when most of the post HIPCs in the region were implementing IMF

supported programs that limit external non-concessional borrowing and monetary financing of

government operations. AFRODAD (2011) alludes that there are cases where governments have

been borrowing domestically to service external obligations.

2.1.3 The Global Financial Crisis

The economic and financial crisis that materialized in 2008 affected significantly the developing

countries that depend primarily on exports of commodities, not sparing those in the MEFMI

region. The negative impact of the crisis manifested through reduced revenue earnings from

primary exports, loss of jobs as businesses closed or scaled down production, and declining foreign

direct investments. Governments experienced decline in both domestic revenue and aid inflows.

In Zambia, JCTR (2009) estimated job losses of up to 12,000 in the mining sector alone following

the closure or placement under care and maintenance of a number of mines. This was caused by a

fall in copper export proceeds as its world price declined from US$ 8,980 to US$2,812 per tonne

during the period July - December 2008. This led to reduced earnings for the government from

mineral royalties and corporate taxes as well as falling income taxes from employees in the mining

and related sectors. Consequently, the Government resorted to domestic borrowing to finance its

17

operations. As a result, domestic debt increased from ZMK8.3 billion in 2007 to ZMK8.5 billion

in 2008 and further to ZMK 20.5 billion by September 2014.

The situation was not different from the rest of the countries. Kenya experienced a sharp increase

in domestic debt interest payments from around KES 40 billion in 2006/07 to KES 110.2 billion

in 2012/13. This is largely due to an increase in Government domestic borrowing to compensate

for the shortfalls in the budget-anticipation of external financing (AFRODAD 2011). Although,

Tanzania was also not spared with the impact of the Financial Crisis, it maintained the NDF target

of one per cent of GDP as agreed under the IMF-PSI. Although nominal domestic borrowing were

significant, Tanzania managed to maintain the NDF target due to the strong economic

performance.

In most countries globally, the export linked entities were adversely affected. To mitigate these

impacts the governments, advanced and developing, opted to bail out the key productive entities,

through stimuli packages that varied in magnitude and mechanism from one country to another.

These included recapitalization, loss compensations, cleaning balance sheets particularly on non-

performing loans of the financial institutions originating from export losses, and issuance of

guarantees. Irrespective of the magnitude and mechanism, governments incurred domestic

liabilities in the process. The IMF (2010) estimated that the 2007 crisis contributed to large extent

the deterioration of fiscal balances in emerging and developing economies from 0.51 in 2007 to -

4.37 in 2009. This was due to increased public spending and lower revenues.

2.2 Domestic Debt Developments in the Region

The trend of domestic debt in the MEFMI region evolved, both in magnitude and cost and risk

characteristics, in line with developments elucidated in the preceding section.

2.2.1 Trend of Domestic Debt

Public domestic debt increased from an average of 12 per cent of GDP in 2005 to 14 per cent in

2011 in the region, with significant increases in Malawi, Tanzania and Uganda (Chart 3).

18

Chart 3: Domestic Debt in MEFMI Post HIPCs (Per cent of GDP)

Source: Compiled from Countries DSA and MTDS Documents

2.2.2 Cost and Risks Analysis of Domestic Debt

This increase in domestic debt is happening amid limited securities that are concentrated on the

shorter end of the maturity spectrum; narrow investor base – dominated mainly by commercial

banks and central banks; underdeveloped infrastructure; and inactive secondary markets.

Consequently, the public domestic carries relatively higher interest rates and expose government

debt portfolios to significant refinancing and interest rate risks. Table 1 gives a summary of cost

and risks of domestic debt in some MEFMI countries.

0

5

10

15

20

25

30

Malawi Mozambique Rwanda Tanzania Uganda Zambia

% o

f G

DP

Countries

2006 2009 2011 critical level

19

Table 1: Domestic Debt Costs and Risks in Selected MEFMI Countries

Cost-Risk Indicator

Les

oth

o

(20

13

)

An

go

la

(20

12

)

Ma

law

i

(20

13

)

Mo

zam

biq

ue

(20

14

)

Na

mib

ia

(20

12

)

Ta

nza

nia

(20

13

)

Ug

an

da

(20

13

)

Za

mb

ia

(20

14

)

Av

era

ge

Cost WAIR 1.2 na 1.3 1.4 3.9 1.5 0.8 3.1 1.9

ATM (yrs) 12.5 9.7 16.2 15.7 7.8 17.5 19.6 12.5 13.9

Debt maturing in

1yr (% of total)3.7 8.8 2.1 1.8 4 1.4 1.3 2.6 3.2

ATR(yrs) 12.5 4.5 16.2 14.4 7.5 16.9 19.6 11.9 12.9

Debt refixing in

1yr (% of total)4.2 79.5 2.1 10.3 9.2 16.9 1.8 10.3 16.8

Fixed rate debt

(% of total)99.5 21.1 100 91.5 94.2 83.5 100 91.6 85.2

Interest

Rate Risks

Refinancing

Risk

Source: Compiled from Countries MTDS documents

2.3 Literature Review

Although literature on the impact of technological advancement on public debt management is

scanty, few studies for example Mehmet and John (2013) found that after the incorporation of

SETS7, the Johannesburg Stock Exchange (JSE) has become more independent and it now offers

better diversification opportunities for international investors. Thus, deliberate reforms including

adoption of state of the art technology in managing domestic debt are critical to avert a vicious

cycle of recurring debt burden and its associated macroeconomic distortions particularly in

elevating domestic interest rates and consequent crowding out effects. Adoption of electronic

trading in most African countries reduced costs of executing trades, and consequently increasing

the trading volumes as well as facilitating cross border portfolio investments (OECD, 2014).

In assisting the developing countries to improve their capacity to record and disseminate

information on the structure of total public debt, UNCTAD and COMSEC developed the DMFAS

and CS-DRMS, respectively. Since the release of CS-DRMS in 1985, countries have been using

7 SETS is electronic order book (system) used by the London Stock Exchange.

20

it to record and manage debt by providing a comprehensive repository for both external and

domestic debt data. The system continued to be enhanced to respond to changes in instruments,

creditor practices, debt reporting standards, and technology. The system has the necessary features

to perform the key functions of sound management including those related to recording, analysis

and reporting.

The material used in the UNCTAD’s e-learning training course on Debt Sustainability Analysis

(DSA)8 indicates that CS-DRMS has a comprehensive domestic debt module that allows for the

recording of the full issuance cycle of domestic debt instruments such as treasury bills, bonds, and

notes, and for the planning of issues, auctions, and analysis of bids. The system also captures actual

and forecast transactions data as well as that on arrears are in a manner that meets the international

external debt data guidelines (Box 1).

Box 1: Key Debt Management Functions of CS-DRMS Debt Recording Debt Analysis Debt Reporting Other functions

Maintain an inventory of all

external and domestic debt

instruments including:

o Public debt and grants

o Short-term and private

sector debt

o Restructuring agreements

including rescheduling

Record basic details and terms

of an instrument

Record other relevant debt

related information such as

exchange rate, interest rates,

and macroeconomic data

Record actual transactions of

debt service and disbursements

on a transaction-by-transaction

basis

Monitor loans and grant

utilization and disbursements

Monitor government lending

including on-lending

Perform sensitivity analysis on

interest and exchange rate

variation under various

scenarios

Test the implication of new

borrowings, based on different

assumptions of currencies,

interest, and repayments terms

Evaluate different loan offers

Evaluate different proposals

for refinancing and

rescheduling of loans and

compute debt relief

Combine CS-DRMS debt data

with exogenous economic data

to project critical debt

indicators, both on nominal

and present value basis

Evaluate exposure to exchange

and interest rate risk

Identify loans in arrears and

calculate penalty payments

Provide information

and reports on any

group or class of

instruments

Produce standard

reports for various data

requirements including

government finance,

balance of payments

and IIP

Provide easy generation

custom reports using a

purpose-build report

generator

Respond to specific

user enquiries into the

database

Forecast debt service

payments, both by

instrument and in

aggregate terms, with

and without future

disbursements

Transfer debt data

electronically to the

World Bank’s DRS,

QEDS, MTDS-AT,

Horizon, etc

Use validation

utilities to ensure

database integrity and

accuracy

Integrate front, middle

and back office

functions via the

database and security

management options

Perform

housekeeping

functions such as

backup and restore

and setting up modern

access

Source: External Debt Statistics, 2003, ch. 18 as quoted by UNCTAD’s e-learning training course on Debt

Sustainability Analysis

8 Available at http://vi.unctad.org/debt/debt/m3/introduction3.htm

21

3. Assessment Methodology

The assessment of the usefulness and effectiveness of CS-DRMS in managing public domestic

debt is informed by business side users’ perceptions. The major source of data for analysis is based

on primary data collected using structured questionnaire (see Appendix 1) and author’s personal

experience during the apprenticeship. The questionnaires were sent to CS-DRMS sites within

MEFMI region, that is, in the eight countries using the system namely; Botswana, Lesotho, Kenya,

Malawi, Mozambique, Namibia, Swaziland and Tanzania. All targeted offices responded by

completing the questionnaires without undue delays. Information was collected on the situation as

at end of December 2014 and in most cases based on CS-DRMS Version 1.3. For comparison

purposes, data was also collected from seven non-MEFMI member states namely; Antigua,

Guyana, India, Jamaica, Nigeria, Sri Lanka and Tonga. Responses from these non-MEFMI

countries were collected through their officials who participated in the Training of Trainers

Workshop organized by COMSEC in London from 12th to 23rd January 2015. The perception of

COMSEC, the system developers, was also solicited through Mr. Vikas Pandey, a system

development specialist.

The questionnaire had three major parts, structured to answer the questions that pertain to the

objectives of the assessment. The first section covered by questions one through four collected

information on the extent to which CS-DRMS is used to manage public domestic debt. This

identified debt management offices using the system to manage public domestic debt, and the

functions and categories of domestic debt that are managed using CS-DRMS.

The second section, covered mainly by question five, collected information on the challenges faced

by domestic debt managers using CS-DRMS. The challenges are mainly those related to system

features and/or skills of debt managers in using the system. Information collected in this section

was meant to assist future revisions of CS-DRMS and in designing informed interventions to the

specific countries.

22

Question six that forms part three was mainly meant to collect information on users’ understanding

of the latest version of CS-DRMS (version 2.0), and expectations of the countries in addressing

the challenges identified in the preceding part of the questionnaire.

The subsequent section of this paper analyses the findings based on the three major sections of the

questionnaire. Both quantitative and qualitative analysis of the collected will be employed to

facilitate full extraction and use of information for sound interpretation and analysis. Thus, the

findings is in form of narration, charts, figures and tables.

4. Findings and Analysis

The findings discussed in this section are based on the responses from a total of 13 CS-DRMS user

countries, including eight from the MEFMI region. All the targeted offices responded by

completing the questionnaires. The findings are structured first on the extent to which CS-DRMS

is used to manage domestic debt highlighting the functions and categories of debt managed. The

second section discusses the challenges faced by CS-DRMS users and the last part exposes the

user expectations on the latest version.

4.1 The Extent to Which CS-DRMS is used

In foremost, the assessment was whether the responding office is managing domestic debt using

CS-DRMS and then the functions and categories of public domestic debt managed in the office

using the system.

4.1.1 Management of Public Domestic Debt

The findings showed that all eight CS-DRMS user countries9 in the MEFMI region are involved

in managing domestic debt as an integral part of the total sovereign debt. All countries use CS-

DRMS for managing certain functions and categories of domestic debt. However, out of the seven

9 The assessment involved debt management offices/units in the Ministries of Finance, except in Tanzania where the

response was received from the Bank of Tanzania.

23

non-MEFMI member states included in the survey, two countries are not managing domestic

debt10. Alongside using CS-DRMS for managing domestic debt, all offices reported maintenance

of parallel records, mainly in Microsoft-excel, due to reasons to be discussed in the next sections

of this assessment.

4.1.2 Functions of Domestic Debt Performed Using CS-DRMS

In analyzing the extent to which CS-DRMS is used to manage public domestic debt, ten key

functions of domestic debt management were listed each assigned equal weight. Each respondent

had to indicate the functions applicable to his or her office. The assessed functions are: (1)

Auctions, (2) Secondary trading, (3) recording of debt instruments, (4) analysis of costs and risks

of new domestic debt borrowing, (5) analysis of costs and risks of the existing domestic debt

portfolio, (6) analysis of domestic debt in relation to other categories of debt – mainly external and

total, (7) analysis of domestic debt in relation to macroeconomic variables, (8) forecasting

domestic debt payments, (9) generation of statistical and analytical domestic debt reports, and (10)

any others.

In general, the findings indicate that CS-DRMS is adequately used in recording domestic debt and

forecasting debt service payments as well generating statistical and analytical reports. The system

is used in recording domestic debt in all countries in the MEFMI region and in five out of the seven

non-MEFMI countries. The system is also used to forecast debt service payments and in generation

of statistical and analytical domestic debt reports. About half of the MEFMI countries use CS-

DRMS to forecast debt service payments as compared to about 71 percent of non-MEFMI

countries. The findings further indicate that about 63 percent of CS-DRMS users in the region

generate domestic debt statistical reports using the system. The findings are not different from

those of Mr Vikas11 that CSDRMS is capable of keeping track of the stock of domestic debt of the

country as well as projecting on the debt service payments.

10 Respondents from Sri Lanka and India indicated, domestic debt is solely managed by their central banks using in-

house developed systems that are based on Microsoft-excel. 11 Mr Pandey (respondent to the questionnaire) is system developer at COMSEC, with his area of speciality being on

domestic

24

However, limited use of the system in conducting auctions of domestic debt instruments was

reported, whereas only one and two MEFMI and non-MEFMI countries, respectively responded

as using the system for auctions. This support the fact the information on the holding patterns of

the securities is not up to date as CS-DRMS does not incorporate ‘Depository’ functions and

therefore cannot record the details of the movements of securities among investors in a secondary

market trade. The findings further correspond to the OECD (2014) work which showed that, 16

out of 29 reviewed countries in Africa, have the auctions undertaken by the central banks. The

explanation is that central banks have necessary staff with capital markets expertize to conduct

auctions, managing tap sales, and interacting with financial market investors. The use of

government securities for both monetary and financing purposes gives central banks the upper

hand.

The findings correspond to the COMSEC views that in most countries, the domestic debt is

managed in their respective central banks. The Central Banks have their own systems for recording

domestic debt and these systems have more functionalities not available in CS-DRMS, mainly the

depository functions and links to payment system for debt servicing. In efforts to address this,

COMSEC also provides assistance to CS-DRMS user in upload the data in respect of outstanding

and historical domestic debt instruments, and setting up an electronic link with Central Bank’s

systems for upload of data in respect of new domestic debt issuances.

Reponses also showed that most of the analytical features of CS-DRMS are not used. As expected

none of the assessed countries is using the system to conduct secondary market trading. This is

mainly due to the fact that secondary market trading ideally takes place outside of debt

management offices. Chart 4 shows the countries and the key functions of domestic debt

management managed using CS-DRMS.

25

Chart 4: Key Functions of Domestic Debt Management (December 2014)

Note: * a = Auctions, b = Secondary trading, c = recording of debt instruments, d = analysis of costs and risks of new domestic

debt borrowing, e = analysis of costs and risks of the existing domestic debt portfolio, f = analysis of domestic debt in relation to

other categories of debt, g = analysis of domestic debt in relation to macroeconomic variables, h = forecasting domestic debt

payments, i = generation of statistical and analytical domestic debt reports, and j = Others. Source: Author compilation

Among the explanations for the limited use of the CS-DRMS to manage domestic debt is the

fragmented debt management offices. Even in countries where debt is managed in one unit, the

segregation of duties is not according to Front, Middle and Back office, but according to domestic

and external debt. Experience shows in most debt management offices, CS-DRMS database is

installed in the external debt units. Thus, the back office functions of domestic debt are separated

from those of external debt. As such, domestic debt managers resort to excel spreadsheets as an

easy way to record domestic debt. This is the fact even in cases where CS-DRMS has adequate

features to perform such functions.

4.1.3 Instruments Managed Using CS-DRMS

For comparison purposes, a list of instruments were listed for the respondents to indicate those

managed in their countries using CS-DRMS. The instruments assessed were (1) Treasury bonds

notes, (2) Treasury bills, (3) Central Bank advances, (4) debt loans/instruments, (5) undated

1

0

8

3 3 3 3

4

5

0

2

0

5

0

2

1

2

5

3

00

1

2

3

4

5

6

7

8

9

a b c d e f g h i j

MEFMI Non-MEFMI

Nu

mb

ero

f co

un

trri

es

Key Functions*

26

loans/instruments, (6) suppliers credits and/or arrears, (7) future or arrears of pension obligations,

(8) embedded options and/or derivatives, and (9) others to capture any other instruments not listed

from 1 to 8.

The findings show that all CS-DRMS user countries in the MEFMI region use the system to record

Treasury bills and bonds (Chart 5). The situation is, however, different in the non-MEFMI

countries where only four (about 57 per cent) use CS-DRSMS to record the instruments. This

corresponds to views of COMSEC that the Domestic Debt module in CS-DRMS allows for

recording of most types of securities commonly issued by the Government (e.g. T-Bills and various

types of Bonds). The system allows the users to record these instruments in 3-layer architecture:

Instrument – properties of the instrument; Tranche – Issuance details; and Bids – Successful

bidders. The system developers are, however, undertaking continuous enhancement of the

functionalities to cater to various different types of instruments which the countries issue in their

domestic market. Some of the major enhancements made recently are: handling amortised bonds;

bonds with capitalised interest; annuity bonds with varying interest rates; and re-opening of bonds.

It was also found that half of MEFMI countries record the dated loans/loans in the system as

compared to three outside the region. However, only one country in each group is has reported

recording undated instruments in the system and no country is capturing suppliers’ credits, pension

obligations or embedded options. Two countries from the region namely Lesotho and

Mozambique, reported to be using the system to record domestic guarantees. Lesotho records loans

from commercial banks to members of the Parliament although repayments are done through direct

deductions from their wages, Mozambique records building leases.

27

Chart 5: Instruments Managed Using CS-DRMS (end of December 2014)

Source: Author compilation

4.2 Challenges in Using CS-DRMS for Managing Domestic Debt

From the preceding section, the findings show that the MEFMI and Non-MEFMI CS-DRMS user

countries use only 42.5 and 30 per cent of the system, respectively as per the areas covered by the

assessment, that is, the instruments and key functions of domestic debt management. The

questionnaire also collected information on the challenges faced by users in using the system to

manage public domestic debt. The responses indicated both skills and inadequate features of the

system as the main challenges (Chart 6). Three-quarters of the MEFMI’s CS-DRMS user countries

reported the two challenges. However, only two (29 per cent) of non-MEFMI countries attributed

these as challenges.

The findings further shows that one country, outside the MEFMI region, reported absence of the

domestic debt module in their database as a challenge. Inability to interface CS-DRMS with other

accounting systems was also reported by one country in the region. Nevertheless, all respondents

highlighted inadequate reporting features of the system as challenges in utilizing the system

effectively. Consequently, all the assessed countries are maintaining parallel domestic debt

databases and/or records in different formats, particularly for reporting purposes.

8 8

0

4

1

0 0 0

2

4 4

-

3

1

- - - -0

1

2

3

4

5

6

7

8

9

MEFMI non-MEFMI

Num

ber o

f cou

ntrie

s

28

Chart 6: Challenges in Using CS-DRMS for Managing Domestic Debt

Source: Author compilation

8.3 Users’ Expectations on CS-DRMS Version 2.0

Although it was beyond the key objective of the assessment, the information on the latest version

of the CS-DRMS (Version 2) was collected to evaluate users’ understanding of the enhancements

made in the system as well as their expectations. All respondents indicated their awareness of the

CS-DRMS Version 2.012. By the time of assessment, three countries13, including two from the

MEFMI region, had already installed the version, upgraded their debt databases accordingly and

had preliminary in-house training.

The findings indicate that 75 per cent of CS-DRMS users in region believe that the inadequacies

of CS-DRMS Version 1.3 have been addressed in Version 2.0. Most of the respondents highlighted

the following enhancements as important in addressing their concerns:

12 It is worth noting that, all of the respondents had at least introductory formal training of CS-DRMS Version 2.

MEFMI had already conducted a regional workshop in Nairobi Kenya and respondents from Non-MEFMI countries

were in fact experts in the system, as they were attending a training of trainers and some of them were involved in

testing the system prior to its release. 13 These are Namibia and Mozambique in the MEFMI region and Tonga

-

6 6

1 1

2 2

1

-

1

2

3

4

5

6

7

Installation of CS-

DRMS

Training on CS-

DRMS

Ehancing CS-

DRMS features

Others

MEFMI

Non-MEFMI

Num

ber

of C

ount

ries

Challenges

29

i. new and enhanced reporting features including introduction of dashboard, debt data query

and aggregate report wizard;

ii. advanced filtering features;

iii. consolidation of debt databases (external and domestic), enhanced features of domestic

debt module;

iv. features for partial redemption of debt instruments; and

v. introduction of the lending module as an integral of the database

In general, the assessed offices have higher expectations that CS-DRMS Version 2.0 will enhance

the use of the system in managing domestic debt (Chart 7). Most of these expectations are built on

the highlighted enhancements above.

Chart 7: Expectations on CS-DRMS Version 2.0

Source: Author compilation

Some respondents have, however, indicated areas that would need further enhancements to

facilitate effective use of the system in managing public domestic debt. These include interfacing

features with other systems, particularly the accounting software in the Integrated Financial

Management System (IFMIS) as well as auction systems used in central banks. Interfacing with

these systems could smoothen automatic processing of transactions during settlement as well as

uploading of auctions results.

8

2

6 6

7 7

1 1 1

5

-

1

2

3

4

5

6

7

8

9

Awareness of

CS-DRMS

v.2.0

Database

upgraded

Adequacy of

the features

for domestic

debt

How Expectation on

in relation to

the challenges

MEFMI Non-MEFMI

Num

ber

of co

untr

ies

30

5. Conclusion and Recommendations

5.1 Conclusion

The role played by domestic sources in financing government budgetary deficits is increasingly

becoming significant in recent years, partly due to the shrinking traditional sources of finance,

internal economic reforms that facilitated emergence of domestic markets, and economic

liberalization that created private market investors, all coupled with increased public investments

aimed at attaining millennium developments goals. Consequently, domestic debt increased to an

average of about 15 per cent of GDP in early 2010s in the region from around 10 per cent in mid-

2000s. Apart from the rising magnitude and ratio domestic debt relative to total debt and GDP, the

costs and risk of the existing debt portfolios also rose on average due to high interest rates and

relatively shorter maturities inherent with domestic borrowings.

These developments, therefore, require sound and active management in order to minimize costs

and vulnerability to risks. To this effect, robust computer based debt management systems remain

key. It is against this background that the Commonwealth Secretariat and UNCTAD developed

CS-DRMS and DMFAS, respectively. Although these systems were initially developed to respond

to external debt crises in 1980s, the developers have been enhancing the systems to accommodate

developments in domestic debt managements.

In assessing the use and effectiveness of CS-DRMS Version 1.3 in managing public domestic debt

in 15 countries including eight in the MEFMI region, it was found that most of the debt offices are

only using the system at minimum level and in fact parallel databases and records are maintained.

Most of the countries are only using the system for recording and producing limited reports on

debt service forecasts for treasury bills and bonds. Other categories and functions of domestic debt

management are not managed using CS-DRMS. The limited use of the system emanates from both

inadequate user technical know-how and system capabilities.

Among the assessed debt management offices, inadequate technical skills on CS-DRMS, was cited

as among the main challenges towards the effective use of the system for managing public

31

domestic debt. Most respondents indicated that the use of the system can be enhanced through

organizing regional and in-country training events on CS-DRMS targeting only domestic debt

management rather than combining it with external debt.

Concerning the effectiveness of the system, the findings showed that CS-DRMS Version 1.3 has

deficiencies in managing public domestic debt. Particularly, the reporting features of the version

were identified as a major challenge. This finding is founded by the fact that CS-DRMS was

originally developed to address external debt management functions. In as such CS-DRMS has no

features necessary to be used as a central depository system (CDS), a key function of domestic

debt management. It was also noted that domestic debt issuance (auctions) in most countries is

undertaken by central banks. The central banks, already had tailor made systems for domestic debt

issuance that also provides central depository roles. This, is partly attributable to fragmented

institutional arrangement in debt management.

It was also observed from the responses that most of the users have high expectations on CS-

DRMS version 2.0 released towards end of 2014 which was yet to be adopted in most of countries

at the time of assessment. Users believe that, the wider adoption the version and adequate training,

will enhance the use of the system in managing public domestic debt.

The consequence of all these is that domestic debt is not managed optimally and is characterized

by duplication of resources. Some functions for example the issuance is performed using the

auction systems at central banks while recording is done partly in CS-DRMS (for Treasury bills

and bonds) and others in Microsoft spreadsheets, which lacks the key analytical functions of public

debt management.

5.2 Recommendations

From the findings discussed in the preceding sections, it is clear that the use of CS-DRMS in

managing domestic debt is limited. Skills and system adequacies have been cited as reasons. This

is happening despite the remarkable investments in developing CS-DRMS and procurement of the

32

necessary software and hardware by the users. Thus, to benefit from the investments through

effective use of CS-DRMS for managing domestic debt, the following are recommended:

(i) Organizing regional training events, specifically on the use of CS-DRMS in managing

domestic debt. Experience has shown that external debt management always dominates

whenever a training is organized combining both external and domestic debt.

(ii) Intensification of in-country interventions on the use of CS-DRMS for managing domestic

debt is crucial. The countries’ specific findings included as Annex I, should be a basis for

designing and executing country interventions. The findings indicate to a lesser extent the

requirements of each country.

(iii) Comsec, the developers of CS-DRMS, need to take cognizant of the fact that domestic

borrowing is becoming significant in bridging revenue-expenditure gap in most developing

countries, which create a need for active management using a sound computer based debt

management system. Although, CS-DRMS Version 2.0 has addressed some of the

challenges of Version 1.3, there is still a need for deliberate acceleration of research and

development towards further enhancement of the domestic debt module of CS-DRMS to

respond to emerging issues in the financial markets.

(iv) Country reforms toward consolidation of debt management functions along the sound

functional segregation of duties, including consolidation of debt databases, helps to

enhance the use of CS-DRMS in managing domestic debt as an integral of public debt.

This can be enhanced by combining domestic and external debt management and

organizing the debt office along the Front, Middle and Back office functional units. Thus,

bringing domestic and external debt back office functions together, for instance facilitate

team work and adoption of single system (CS-DRMS) for recording and reporting public

debt in totality.

33

References

AFRODAD (2011): African Forum and Network on Debt and Development: A 2011 Narrative

Report.

AFRODAD (2011): Domestic Debt Management in Africa: The Case of Kenya.

AFRODAD (2011): Domestic Debt Management in Africa: The Case of Zambia.

AFRODAD (2013): Domestic Debt Management in Africa: The Case of Tanzania.

Andrea F. Presbitero, (2010); Total Public Debt and Growth in Developing Countries. CENTRO

STUDI LUCA D’AGLIANO DEVELOPMENT STUDIES WORKING PAPERS, N.

300 November 2010.

BOT, (2014); Economic and Operations Report 2013/14.

BOT, (2014); Monthly Economic Review – June 2014.

Calvo, G. (2005); “Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?” Cambridge,

United States: MIT Press.

CBK, (…); Various Publications.

Giovanna B., Juan P, and Andrea F. P., (2014); Domestic public debt in Low-Income Countries:

Trends and structure. Review of Development Finance 4 (2014) 1–19.

IMF, (2010); World Economic Outlook - Rebalancing Growth. International Monetary Fund.

Isaya M., Raphael O. and Nahashon M. (2008): Domestic Debt and its Impact on the Economy

– The Case of Kenya. Paper Presented During the 13th Annual African Econometric

Society Conference in Pretoria, South Africa from 9th to 11th July 2008.

JCTR (2009): The Impact of the Global Economic Crisis on Zambia: Responses and

Recommendations: A Submission to the Economic Affairs and Labour Committee

of Parliament, Lusaka.

Mehmet F. Dicle and John Levendis (2013): The impact of technological improvements on

developing financial markets: The case of the Johannesburg Stock Exchange. Review

of Development Finance 3 (2013) 204–213.

OECD, (2014); African Central Government Debt: Statistical Year Book 2003-2013, Available at

http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-

investment/african-central-government-debt-2014_acgd-2014-en#page1.

34

The Commonwealth (2014): CS-DRMS Version 2.0 Release Notes.

Ugo Panizza (2007); Is Domestic Debt the Answer to Debt Crises? Working Paper Series Task

Force on Debt Restructuring and Sovereign Bankruptcy.

Ugo Panizza (2008); Domestic and External Public Debt in Developing Countries, UNCTAD

Discussion Papers No:188 of March 2008. United Nations Conference on Trade and

Development..

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Available at http://vi.unctad.org/debt/debt/m3/introduction3.htm.

35

Appendices

Appendix I: Questionnaire Reponses

Table 2: MEFMI Countries Responses on the Functions and Categories of Domestic Debt Managed using CS-

DRMS (Dec 2014)

Table 3: Non-MEFMI Countries Responses on the Functions and Categories of Domestic Debt Managed

using CS-DRMS (Dec 2014)

Item Examined Weights Botswana Kenya Lesotho Malawi Mozambique Namibia Swaziland Tanzania Average

Q1 The office manage domestic public debt 5 5 5 5 5 5 5 5 5 5

Q2 The office / institution use CS-DRMS 5 5 5 5 5 5 5 5 5 5

Q3 Functions of domestic debt are managed using CS-DRMS 47.5 35 25 10 20 5 10 40 5 19

a Auctions 5 0 0 0 0 0 0 5 0 1

b Secondary trading 5 0 0 0 0 0 0 0 0 -

c Recording 5 5 5 5 5 5 5 5 5 5

d Analysis of cost and risks of new domestic debt borrowing 5 5 0 0 5 0 0 5 0 2

e Analysis of cost and risks of existing domestic debt 5 5 0 0 5 0 0 5 0 2

f Analyis of domestic debt in relation to other categories of debt 5 5 5 0 0 0 0 5 0 2

g Analysis of domestic debt in relation to macroeconomic variables 5 5 5 0 0 0 0 5 0 2

h Forecasting domestic debt service payments 5 5 5 5 0 0 0 5 0 3

i Analytical and statistical domestic debt reports 5 5 5 0 5 0 5 5 0 3

others 2.5 0 0 0 0 0 0 0 0 -

Q4 Instruments of domestic debt are recorded / managed using CS-DRMS 42.5 10 15 22.5 15 12.5 10 15 10 14

a Treasury bonds/notes 5 5 5 5 5 5 5 5 5 5

b Treasury bills 5 5 5 5 5 5 5 5 5 5

c advances and Ways and Means 5 0 0 0 0 0 0 0 0 -

d other dated domestic loans 5 0 5 5 5 0 0 5 0 3

e undated instruments 5 0 0 5 0 0 0 0 0 1

f suppliers arrears 5 0 0 0 0 0 0 0 0 -

g future pension obligations / arrears 5 0 0 0 0 0 0 0 0 -

h Embedded options 5 0 0 0 0 0 0 0 0 -

i others 2.5 0 0 2.5 0 2.5 0 0 0 1

Total 100 55 50 42.5 45 27.5 30 65 25 42.5

Item Examined Weights Antigua Guyana India Jamaica Nigeria Sri Lanka Tonga Average

Q1 The office manage domestic public debt 5 5 5 0 5 5 0 5 4

Q2 The office / institution use CS-DRMS 5 5 5 0 5 5 0 5 4

Q3 Functions of domestic debt are managed using CS-DRMS 47.5 25 30 0 15 10 0 20 14

a Auctions 5 5 5 0 0 0 0 0 1

b Secondary trading 5 0 0 0 0 0 0 0 -

c Recording 5 5 5 0 5 5 0 5 4

d Analysis of cost and risks of new domestic debt borrowing 5 0 0 0 0 0 0 0 -

e Analysis of cost and risks of existing domestic debt 5 5 5 0 0 0 0 0 1

f Analyis of domestic debt in relation to other categories of debt 5 0 5 0 0 0 0 0 1

g Analysis of domestic debt in relation to macroeconomic variables 5 0 5 0 0 0 0 5 1

h Forecasting domestic debt service payments 5 5 5 0 5 5 0 5 4

i Analytical and statistical domestic debt reports 5 5 0 0 5 0 0 5 2

others 2.5 0 0 0 0 0 0 0 -

Q4 Instruments of domestic debt are recorded / managed using CS-DRMS 42.5 15 10 0 15 15 0 5 9

a Treasury bonds/notes 5 5 0 0 5 5 0 5 3

b Treasury bills 5 5 5 0 5 5 0 0 3

c advances and Ways and Means 5 0 0 0 0 0 0 0 -

d other dated domestic loans 5 5 5 0 5 0 0 0 2

e undated instruments 5 0 0 0 0 5 0 0 1

f suppliers arrears 5 0 0 0 0 0 0 0 -

g future pension obligations / arrears 5 0 0 0 0 0 0 0 -

h Embedded options 5 0 0 0 0 0 0 0 -

i others 2.5 0 0 0 0 0 0 0 -

Total 100 50 50 0 40 35 0 35 30

36

Table 4: MEFMI Countries Responses on the Challenges, and understanding and Expectations on CS-DRMS

Version 2

Table 5: Non-MEFMI Countries Responses on the Challenges, and understanding and Expectations on CS-

DRMS Version 2

Item Examined Weights Botswana Kenya Lesotho Malawi Mozambique Namibia Swaziland Tanzania total

Q5 Challenges use of CS-DRMS 4 2 2 1 2 1 2 1 2 13

Installation of CS-DRMS 1 0 0 0 0 0 0 0 0 -

Training on CS-DRMS 1 1 1 0 1 1 1 0 1 6

Ehancing CS-DRMS features 1 1 1 1 1 0 1 0 1 6

Others 1 0 0 0 0 0 0 1 0 1

Q6 Understainding and Expectation on CS-DRMS v2.0 5 4 4 4 4 4 3 2 4 29

Awareness ofCS-DRMS v.2.0 1 1 1 1 1 1 1 1 1 8

Database upgraded 1 0 0 0 0 1 1 0 0 2

Adequacy of the features for domestic debt 1 1 1 1 1 1 0 0 1 6

How 1 1 1 1 1 1 0 0 1 6

Expectation in relation to the challenges 1 1 1 1 1 0 1 1 1 7

Item Examined Weights Antigua Guyana India Jamaica Nigeria Sri Lanka Tonga total

Q5 Challenges use of CS-DRMS 4 0 0 0 1 3 0 2 6

Installation of CS-DRMS 1 0 0 0 0 1 0 0 1

Training on CS-DRMS 1 0 0 0 0 1 0 1 2

Ehancing CS-DRMS features 1 0 0 0 0 1 0 1 2

Others 1 0 0 0 1 0 0 0 1

Q6 Understainding and Expectation on CS-DRMS v2.0 5 1 2 1 3 3 2 3 15

Awareness ofCS-DRMS v.2.0 1 1 1 1 1 1 1 1 7

Database upgraded 1 0 0 0 0 0 0 1 1

Adequacy of the features for domestic debt 1 0 0 0 0 1 0 0 1

How 1 0 0 0 1 0 0 0 1

Expectation in relation to the challenges 1 0 1 0 1 1 1 1 5

-

37

Appendix II: QUESTIONNAIRE

Assessment of the Use and Effectiveness of CS-DRMS for Managing Domestic Debt in the

MEFMI Region

Country:……………………………………………………………………………

Institution:………………………………………………………………………….

Name of Respondent:……………………………………………………………..

Title of Respondent:…………………………………………………………….....

Date of Response:………………………………………………………………….

This questionnaire is designed to capture information on of the use and effectiveness (adequacy)

of the Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) in

managing public domestic debt in the MEFMI region. This data is collected to inform an

assessment on the use and effectiveness of CS-DRMS for managing public domestic debt in the

region. The assessment is towards accreditation of the MEFMI fellow specializing in CS-DRMS

User Training. The findings will help the region or developers to make CS-DRMS user friendly.

1. Does your office manage domestic public debt? Yes/No ………….. If yes, what Computer

Based Debt Management System (CBDMS) is used? ..............................

2. Does your office / institution use CS-DRMS to manage domestic public debt? Yes/No ……

If NO why? (Tick the reasons that apply to your office)

a. We do not manage public domestic debt

b. We do not have CS-DRMS in our office

c. We have another system

d. CS-DRMS does not have the necessary feature for managing public domestic debt

e.g.…………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

e. We do not have adequate skills to manage public domestic debt using CS-DRMS

f. Any other reasons……………………………………. ……………………………

………………………………………………………………………………………

………………………………………………………………………………………

3. If yes, what functions of domestic debt are managed using CS-DRMS? (tick those that

apply to your office)

a. Auctions of domestic debt instruments/securities

b. Secondary trading of domestic debt instruments

38

c. Recording of domestic debt instruments

d. Analysis of cost and risks of new domestic debt borrowing

e. Analysis of cost and risks of existing domestic debt

f. Analyzing domestic debt in relation to other categories of debt .e.g. external debt,

public sector external debt, publicly guaranteed external and domestic debt, etc

g. Analysis of domestic debt in relation to macroeconomic variables e.g. GDP,

domestic revenue, exports, etc

h. Forecasting domestic debt service payments

i. Generation of various analytical and statistical domestic debt reports

j. Any other functions of public domestic debt management performed using CS-

DRMS …………………………………………………………………………

………………………………………………………………………………………

4. What instruments of domestic debt are recorded / managed using CS-DRMS in your office

/ institution? (Tick those that are relevant to your office)

a. Recording of Treasury bonds/notes

b. Recording of Treasury bills

c. Recording of advances and Ways and Means

d. Recording of other domestic loans

e. Recording of undated instruments

f. Recording of suppliers arrears

g. Recording of future pension obligations / arrears

h. Embedded options

i. Any other categories of domestic debt recorded in CS-DRMS ……………………

………………………………………………………………………………………

……………………………………………………………………………………..

5. What need to be done so that CS-DRMS is used to manage public domestic debt in your

office/institution (tick those relevant to you)

a. Installation of the CS-DRMS

b. Training on the use of CS-DRMS

c. Enhancement of CS-DRMS to meet the requirements of the domestic debt in our

office / institution

d. Any other …………………………………………………………………………..

………………………………………………………………………………………

6. Are you aware of CS-DRMS Version 2.0?

a. Has your office / institution upgraded the database to CS-DRMS Version 2.0?

Yes/No ……..

39

b. Do you think some of the inadequacies of CS-DRMS have been addressed in the

latest version (CS-DRMS Version 2.0)? Yes/No ………………………..

c. If yes in (b) how?

....................................................................................................................

………………………………………………………………………………………

………………………………………………………………………………………

d. Do you expect that CS-DRMS Version 2.0 will enhance use of the system in

managing domestic public debt in your office / institution? YES/NO ……….

How? …………………………………………………………………………….

………………………………………………………………………………………

………………………………………………………………………………………