IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Data Preparation

Joint Vienna Institute, Vienna, Austria

February 23 – 27, 2015

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Steps to be taken to prepare debt data for the Medium Term Debt Management Strategy Analysis, specific to Analytical Tool (AT):

Data Coverage

Data accuracy

Grouping existing debt portfolio into ‘Representative Instruments’

Summarizing all cash flows by ‘Representative Instruments’

Data preparation is done outside the Analytical Tool (in an excel file)

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

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Central vs. general government debt, guaranteed debt, SOE debt, etc.

Issues for considerations:

• Arrears?

• IMF debt?

• Guarantees and other contingent liabilities (PPPs)?

Typical starting point: Central government external and domestic debt

Data Coverage

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Data Accuracy

Use loan-by-loan data from the debt recording system (DMFAS, CS-DRMS or other)

Database must report all terms and conditions applied to existing debt (creditor, loan ID, loan maturity, grace period, interest rate and type, currency, etc.)

We are interested in the cash flows of disbursed and outstanding debt (DOD) only - NOT contracted, but undisbursed loans

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Projection of Principal Payments

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Principal payments are generated according to amortization structure

Bullet structures can be simulated using grace periods to the year before maturity

After principal payments are projected, validate against loan outstanding for each loan

Loan Outstandingt=0 = Principalpaymentst=1

t=n

å

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Projection of Interest Payments

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For fixed interest rate: interest rate x outstanding balance

For variable interest rate: spread x outstanding balance (in MTDS-AT, spread is added to the reference rate)

1tt1t rateinterestbalanceOutst.paymentsInterest

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Objective is to reduce the number of lines to simplify the analysis while retaining the main characteristics of the existing portfolio

The analysis should identify loans whose cash flows are similar when it comes to grace period, maturity, interest rate type, etc.

When deciding on representative or stylized instrument, think ahead – what instruments could we potentially use in the future?

Limit of 15 instruments in the AT

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Grouping Existing Debt Portfolio into ‘Representative Instruments’

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

How?

• For existing instruments (most likely to continue in the future), look at 2 sets of information:– Interest rate type (fixed vs. variable)

– Original maturity (no. of years) and grace

– What about T-Bills?

• Assume all is one year

• Calculate an average interest rate, and divide into principal payment and interest payment

• For new instruments, take into account current strategy– For example, if target is to extend maturity of domestic debt, include

longer term instruments

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Identify Instruments by Loan Attributes

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Frequently used stylized instruments include: – IDA type concessional loans (hard coded)

– ADF type concessional loans (hard coded)

– other multilateral concessional loans

– semi-concessional fixed interest rate loans

– semi-concessional floating interest rate loans

– bilateral loans with fixed interest rate

– bilateral loans with floating interest rate

– international sovereign bonds

– syndicated or commercial loans

– domestic T- bonds with different maturities

– domestic T-bills

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

How many instruments?

• As few as possible

– Fewer assumptions about future market rates are needed

– Few currencies allows more detail when it comes to instruments

• Remember: A total of 13 instruments are available for you do define– If you work with 5 currencies, only 3 instruments are available per instrument

• How to decide on the # of currencies?

– Relative size of outstanding debt in specific currencies• Assign currencies

– Expectations about future borrowing

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

What About SDR Denominated Debt?

• Special Drawing Rights (SDR) is made up of four currencies and each is assigned weights based on their roles in international trade and finance

– US dollar 41.9 percent

– Euro 37.4 percent

– Pound sterling 11.3 percent

– Japanese yen 9.4 percent

• Split SDR according to the above distribution

– And decide how to treat currencies that you don’t include in your analysis, e.g. Pound equal to US dollar

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Tips and Tricks (1)

• Make sure all data is in original currency, not in repayment currency

• Before aggregation transfer all cash flows into one common currency

• Check outstanding=sum of principal

• Check that outstanding of each loan becomes zero at some point

• Check that interest payments are always constant or falling linearly over time

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IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

Tips and Tricks (2)

• If own data shows higher payments than creditor, own data may have accidentally entered full contract (signed) amount, whereas not everything has been disbursed in reality

– This happens often with investment loans, where a project executing ministry requests and receives the disbursement without informing the Ministry of Finance/Debt Management Office

• Contact creditors regularly and ask for their data

• Before copying to MTDS AT, make sure that you go back to original currencies 15

IMF-WB Workshop on Medium Term Debt Management Strategy (MTDS)

What Do We Need for Data Preparation?

• Good and updated database

• Complete principal and interest cash flows in Excel

• Analyze data and decide on instruments and currencies

• We need original currencies for the AT – but for data aggregation all loans should be expressed in one currency, typically domestic or US dollar

• After the aggregation is finished, we go back to original currencies

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