The World Bank wants developing countries to adopt effective Debt Management Performance Assessment Tool (DeMPA) to enhance clarity between monetary policy implementation and debt management for sustainable growth, stressing that domestic capital markets are fragile in low income countries in the West African region.
A representative of World Bank, Lilia Razlog, made this known while addressing participants at the opening ceremony of a regional training on DeMPA, organised by World Bank in collaboration with West African Institute for Financial and Economic Management (WAIFEM) in Lagos.
"DeMPA is important tool to give banks and governments modern skills for effective debt management for economic stability. The skills from DeMPA will improve developing countries in debt management to boost growth rate.
The methodology of debt management was developed by World Bank with international institutions to help various countries in efficient debt management and about 60 countries have applied this methodology effectively", she said.
In his keynote address, the Director General of WAIFEM, Prof. Akpan Ekpo, explained that governments in low income countries faced a complex array of competing economic and policy demands in seeking to improve the lives of their citizens, saying citizens of these countries seek additional and improved services in infrastructure, education, health care, electricity, social justice and security among others, as well as more efficient and equitable systems of taxation. "Because domestic resources in these countries are limited to meet these needs, countries often have to borrow and frequently accumulate debt. Consequently, governments in low income countries often face considerable balance sheet risks, given their high levels of indebtedness in relation to GDP and to export receipts,"he stated.
"Their economies are heavily dependent on commodities, and are exposed to volatile terms of trade movements and capital flows. At the same time, in many of these countries, domestic capital markets are fragile or non existence. The process of fiscal decentralisation is often at a developmental stage, and an extensive collection of guarantees as well as other contingent obligations at all levels of government must be managed.
"Therefore, prudent government debt management is essential to sound practices for public borrowing and debt- management, which are important to support economic stability. High quality public debt management can reduce financial vulnerabilities, contribute to macro-economic stability, preserves debt sustainability and protect a government's reputation.
Volatility of interest rates, exchange rates and debt flows requires debt managers to properly assess possible risks and to mitigate them by relying on diverse range of financing sources, while maintaining borrowing costs at prudent levels. These will result in reduction of government's budgetary exposures. The Auditor General departments at national and state levels of government can play active role in protecting the financial condition of governments and reduction in budgetary expenditure.
These would ensure that sound public debt strategies and risk management practices are put in place to certify data disclosure policies and effective supervisory regulatory regime for public sector financial management. The risks associated with future obligations and claims on government's budget, as well as possible contingent obligations arising from the private sector can therefore be minimised."
Speaking on the theme, 'Basic Statistics, Econometrics and Research Methods', the director, Debt Department, Mr. Baba Musa, said, "Understanding of basic statistics and research methods by policymakers involved in management of our economy has become increasingly necessary given the ever increasing openness of economic transactions and the need to appreciate the link between theory and practice. Econometric results bring empirical content to bear on economic relations.
The course is intended to upscale the skills of policymakers in economic research and policy decisions for improved performance of the economy".
He stressed that the DeMPA Tool developed by World Bank has been designed to be user-friendly. "The tool undertakes assessment of strengths and weaknesses in government debt management practices. The training was meant to develop competences of participants in application of DEMPA tool as a catalyst to strengthen national and sub-national debt management.
DeMPA evaluate strengths and weaknesses in public debt management, through indicators covering core areas of public debt management namely, governance and strategy development, coordination with macroeconomic polices, borrowing and related financing activities, cash flow forecasting and cash balance management, operational risk management and debt records. Its scope is central government public debt management and closely related functions such as issuance of loan guarantees, on-lending and cash flow forecasting and cash balance management.
DeMPA guides the design of actionable reform programmes and facilitate monitoring of performance over time."