Bangladesh: Debt

Management & Experiences

with DeMPA Tool

Iqbal A. Harun
Deputy Secretary
Treasury & Debt Management Wing
Ministry of Finance

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Presentation Outline

€ Debt and Debt Management in BD

€ Bangladesh DeMPA Report
€ DeMPA : As a DM Performance Tool
€ GFC Aftermath, DeMPA & LICs
€ Conclusions

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Debt &
Debt Management in
Bangladesh

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Bangladesh: Debt Profile
(as of June, 2008)
Outstanding As % of As % of
(Billion $) Total GDP
Domestic Debt 15.7 43.6 20.0
Marketable 5.8 16.1 7.4
T-Bills 1.5 4.2 1.9
T-Bonds 4.3 11.9 5.5
Non-Marketable 9.9 27.6 12.7
Central Bank Loans 3.3 9.2 4.2
Retail Debt (NSD) 6.6 18.4 8.4
External Debt 20.26 56.4 25.9
Multilateral 16.98 47.3 21.7
Bilateral 3.28 9.1 4.2
Total Debt 35.9 100.0 46.0

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Key Trends
€ Never failed any of its debt repayments since 1972
€ Debt US$ 15 billion in 1993 & US$ 35.9 billion in
2008
€ Of the total outstanding 43% domestic and 57%
external in 2008
€ External debt is mostly MLT and in concessional
terms. Borrowed from multi + bilateral sources.
€ Domestic outstanding is dominated by non-
marketable debt
€ Interest expenditure rose to 13.5% (domestic is 10
times higher) of total expenditure from 5.2%(4
times higher) in 1997
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DSA
€ Latest DSA- 2008.
€ Risk of debt distress was moderate
€ D/GDP ratio is decreasing and stood at 46% in 2008
from 58%(Peak) in 1993
€ External D/GDP is decreasing while domestic D/GDP
is increasing
€ Domestic D/GDP Increased to 20% in FY2008 from
7.8 in 1994
€ The Debt-to-GDP ratio was projected to decline from
about 46.5 percent in 2007 to about 35.7 percent by
2018 under most scenarios

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Debt to GDP Ratio

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External Debt Burden

Thresholds Bangladesh’s Ratios

(%) 2007 2008-2028
Actual Projection
NPV of Debt as % of
GDP 40 17 11
Export 150 97 51
Revenue 250 166 91
NPV of Debt Service as %
of
Export 20 6 3
Revenue 30 10 6
Source: IMF and the World Bank DSA report 2008

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DM Strategy
€ DM responsibilities are distributed among several
organizations
€ Implicit strategy of maximizing external
concessional borrowing & financing the gap from
domestic sources (retail & market)
€ The only discretionary variable is the composition
of marketable domestic debt (issued through T-
Bills & T-Bonds)
€ Implicit strategy is cheaper than recourse to
commercial external debt or domestic debt & less
risky

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Initial Reforms: 2005-2007
€ Organized efforts started in Mid-2005 through a series of
reforms
€ A separate unit was established that concentrated mainly
on separating debt management from cash management
€ Reform coincided with the growth of domestic debt as
percentage of GDP
€ To ensure coordination Cash and Debt Management
Committee was formed
€ Assessment of DM strengths & weaknesses was
constrained by lack of technical capacity but was
essential for planning further reforms
€ DeMPA offered the firsthand status report which helped
identifying the short, medium and long term reform plans
and priorities.

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Bangladesh
DeMPA
Report

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Summary of Assessment
Performance Indicators Assessment
DPI-1 Legal framework Effective
DPI-2 Managerial framework Priority for reform
DPI-3 Debt Management Strategy Priority for reform
DPI-4 Evaluation of Debt Management Operations Priority for reform
DPI-5 Audit Priority for reform
DPI-6 Coordination with Fiscal Policy Effective
DPI-7 Coordination with Monetary Policy Priority for reform
DPI-8 Domestic Borrowing Effective
DPI-9 External Borrowing Priority for reform
DPI-10 Loan, Guarantees, On-Lending and Derivatives Priority for reform
DPI-11 Cash Flow Forecasting and Cash Balance Management Effective
DPI-12 Debt Administration and Data Security Priority for reform
DPI-13 Segregation of Duties, Staff Capacity & Business Continuity Priority for reform
DPI-14 Debt Records Priority for reform
DPI-15 Debt Reporting Priority for reform
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Analysis of the Results-1

€ 4 out 15 DPI was effective

€ Dimensions under DPIs were identified
€ Priority areas for reform identified
€ Scoring (A,B,C,D) enabled government to
know the magnitude of its DM
performance strengths & weaknesses in-
depth

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Analysis of the Results-2
€ Helped identifying the risk areas & enabled
taking timely appropriate measures
€ Help averting serious debt related crisis
even at the time of Global Financial Crisis.
€ For the first time, only Government Debt &
DM related performance was assessed
€ Performance of two important DM related
areas i.e., cash and contingent liabilities
were brought in to light.
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2nd Round Reform: 2008 Onward
€ Effect of GFC started to surface &
macroeconomic consolidation required
€ DeMPA guided the risk management
plan & fiscal consolidation thereby
€ CDMTC was formed aiming technical
level coordination
€ Agreed format was developed to share
debt data regularly enabling close
monitoring of the cost-risk situation
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2nd Round Reform: 2008 Onward
€ Immediate and short term measures were
undertaken
€ Half yearly borrowing calendar was prepared
€ Coordination with fiscal & monetary policy
was strengthened
€ Incentive package for PDs was announced
for bringing competition in the government
bond market
€ Technical assistance sought for sequencing
short, medium & long term DM reform plan
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DeMPA as a Tool

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DeMPA: Strengths
€ Concentrates on Govt. Debt & DM-Focused
€ Several Dimensions covered-Detailed
€ 6 broad areas, 15 DPIs & 35 dimensions
€ A detail reform guide-Comprehensive
€ No suggestions for reform- Country Policy
€ No policy suggestions- Policy Ownership
€ Measurable indicators- Accuracy
€ 2,3,& 4 Dimensional scoring- Less Error

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DeMPA: Weaknesses
€ Very few to mention
€ The scoring method is subjective &
assessment may vary greatly
€ The assessor must be very thorough in
analyzing the issues related to Macro-
fiscal-monetary policies & cash
management which is often a problem
(capacity) for debt distressed LICs

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DeMPA: General Features
€ First of its kind to assess DM performance for
country’s struggling with reforms
€ A comprehensive tool covering important
dimensions
€ Identifies strengths and weaknesses
€ Flexibility in use depending on the country specific
needs
€ Assessment guide countries towards the sound
practice
€ helps monitoring progress towards goal
€ Does not suggest actions that allow freedom to
decide best suited the policy
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GFC,
DeMPA & LICs

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GFC and Debt Management
€ Higher borrowing could pose serious risks to
high debt burden LICs and may increase debt
distress
€ Depreciation in exchange rates may aggravate
the ratios of debt to GDP and fiscal revenues
€ Increased Contingent liabilities resulting from
pressures in the banking sector could further
weaken the structural improvements in the
sovereign balance sheet
€ Decline in reserves poses risk to LICs’ capacity
to service or roll over external debt, which
remains mostly at short maturities

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GFC & DeMPA Tool
€ Countries with weak DM capacity is likely
to be affected most
€ DeMPA tool will help countries to get the
diagnostic report on DM situation
€ Proper assessment of the situation will help
identifying weaknesses in the system
€ Will allow timely interventions and save
LICs from fiscal problems

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 Conclusions

Therefore
€ LICs will surely benefit from the use
of a diagnostic tool like DeMPA at a
time when DM crises is almost
certain for many countries
€ DeMPA report can be a good guide
for countries not in crises but
pursuing reform for consolidation

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Thank You

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