Debt Management Facility: Guiding Countries to Smart Debt Decisions

Context

Debt financing is critical for development. When used wisely, it can help countries finance major projects and achieve sustained and inclusive growth. Effective debt management can help strike the balance between funding the government's needs with debt levels that are sustainable, meaning that debt can be serviced at a reasonable cost under a wide range of circumstances. But many developing countries lack the tools, institutions, legal frameworks, or know-how to actively manage their debt. 

Without these, countries may find that the level of debt they thought they could handle is much harder to manage. Taking on too much debt can threaten a country's stability. If debt service becomes too high, it can detract from services that citizens need. 

The current trends in public debt underscore the importance of prudent debt management. Public debt in developing countries has increased to levels not seen since the 1980s. Governments are borrowing from a wider variety of creditors. These factors, combined with global economic uncertainty, create debt vulnerabilities. 

At their 2018 Annual Meetings in Bali, the World Bank and the International Monetary Fund announced a multi-pronged approach to address these issues. The Debt Management Facility (DMF), a multi-donor trust fund, has an important role to play in supporting the implementation of this approach, particularly in matters related to debt management and debt transparency.

Approach

Through the DMF, the World Bank supports 84 developing countries in undertaking debt-management reforms. By using a variety of tools and activities, the DMF builds countries’ capacity to strengthen their debt management and make more informed decisions about borrowing and related costs and risks.

The DMF has several offerings to address developing country needs:

• Customized technical assistance that is based on peer-reviewed, internationally recognized frameworks such as the Debt Management Performance Assessment (DeMPA), Medium-Term Debt Management Strategy (MTDS), Debt Management Reform Plans and the Domestic Debt Market Diagnostic Framework.
  
• Training and regional workshops for officials from eligible countries to build their capacity to assess their debt levels and undertake debt sustainability analyses.
  
• Peer-to-peer learning opportunities that promote information sharing between The World Bank, client countries and other stakeholders. This includes the annual DMF Stakeholders’ Forum. 
  
• On-the-job learning through the Debt Management Practitioners’ Program, where government officials from debt-management offices of eligible countries work alongside World Bank debt-management experts for a three-month period to facilitate learning and educate debt managers about best practices in other countries.

Results

DMF-eligible countries have made significant strides since 2008. The DMF has achieved the following results:

• Today, more countries prepare and publish debt management strategies, the quality of debt records for government debt has improved, and many countries have improved the organization of their debt-management institutions.
  
• The Debt Management Performance Assessment results for 37 countries where at least two assessments were undertaken during 2008-17 suggest strong improvements in the quality of legal frameworks for sovereign debt management, coordination with monetary policy, managerial structure, and publication of debt reports.
  
• Since 2010, 49 individuals from 45 countries have graduated from the Debt Management Practitioners Program. This includes Stella Nteziryayo, who has served as the head of the Public Debt Office in Rwanda.
  
• The DMF has delivered more than 105 DeMPAs, 95 MTDS, and 65 Reform Plans.

As more countries take on debt to finance development, the debt-management guidance and capacity-building delivered by the DMF is critical to keeping low-income and middle-income developing countries on a sustainable path.

Partners

DMF capacity-building efforts have been accomplished through the contributions of the DMFs Implementing Partners (IPs), which participate in DMF missions and trainings. They also assist in organizing training events. Some IPs also support continued reform implementation through their country engagements. In FY19, the DMF IPs were: Debt Management Program of the United Nations Conference on Trade and Development (UNCTAD-DMFAS), the Debt Management Section of the Commonwealth Secretariat (COMSEC), Debt Relief International (DRI), the Macroeconomic & Financial Management Institute of Eastern & Southern Africa (MEFMI), the West African Institute for Financial and Economic Management (WAIFEM), and the Agence UMOA Titres (AUT). The DMF also benefits from cooperation with the Japanese International Cooperation Agency (JICA).

Looking Ahead

The DMF launched its latest phase in April 2019. The new phase builds on the success of the DMF program, as confirmed by an external evaluation, while scaling up work on debt transparency, debt-related fiscal risk management, and a strengthened focus on results. It will be operational in FY20.

This effort is uniquely positioned to adapt to emerging debt-management challenges in developing countries, drawing on the DMF’s expertise, track record, and reputation to strengthen capacity and institutions. It has been informed by emerging debt and debt-management challenges in developing countries; lessons learned from 10 years’ experience of the DMF; the country and analytical work of the parent institutions; and recommendations from an external independent evaluation completed in 2018. The services the DMF offers have been in strong demand from client countries over the years, and will continue through its next phase.