Sovereign Debt Management, Cash Management, & Domestic Market Development
Introduction: In post-HIPIC countries improved debt management capacity is one ingredient of a policy framework to ensure that in future debt remains sustainable. This case study has been developed to provide policy makers and officials with a tool to assist them improvetheir understanding of the issues involved in sovereign debt and cash management and domestic debt market development. The case study format permits a focus on practicalissues in a real-life context. Studying the situation of other countries may cast light on issues relevant to policy makers and officials in their own countries. The case study covers debt management, cash management and developing the domestic debt market in order to allow policy makers and officials to better understand the inter-relationships between these areas and the need for coordination of the Government’s activity.
Objectives and Analytical Framework: Best practice is to develop a debt financing strategy based on clear objectives for managing the debt and on an analytical framework which integrates the debt management policies with Malawi’s overall strategy for macro-economic policy.Countries which have such a debt strategy generally state their objectives in terms of meeting the country’s priority financing needs at minimum cost, subject to an acceptable level of risk. To evaluate this risk, they use an analytical framework which looks not only at the impact of debt servicing on balance of payments sustainability, but also at its impact on fiscal sustainability. This type of framework is known as an asset/liability management (ALM) framework, as the risks of the debt portfolio are measured against the government’s revenue streams, which are its principal assets..
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