JIS News

During the 2006/07 financial year, debt management will continue to be guided by the fundamental strategic objective of the government’s medium-term debt management strategy of lowering the costs of borrowing, subject to the containment of risks within acceptable levels.
This is outlined in a Ministry Paper, which was tabled in the House of Representatives on April 27 by Minister of Finance and Planning, Dr. Omar Davies, when he opened the 2006/07 Budget Debate.
According to the document, risk management will continue to be a critical tool in debt management strategy for the year and beyond.
Within the context of the medium-term strategy, aimed at achieving a sustainable level of indebtedness, the strategy will seek to: maintain an appropriate mix of fixed-rate and floating-rate debt to further minimize interest rate risk; extend and smooth the maturity profile of the debt to better manage refinancing risk; minimize foreign currency exposure of the domestic debt portfolio; increase the use of the auction mechanism for issuance of domestic securities; and increase the transparency and predictability of debt issuance and operations, the Ministry Paper said.
Increased emphasis will be placed on reducing the sensitivity of the domestic debt portfolio to unexpected interest rate shocks, especially given the increased level of variable-rate domestic debt. The Government will seek to increase the fixed-rate share of the domestic debt.
The document said that significant progress has been made over the years in re-balancing the maturity structure of the public debt, particularly the domestic debt. The strategy will further seek to increase the number of offers of government securities with maturities in excess of 10 years.
“This is consistent with the objective of reducing financing risk over the medium term. In addition, the availability of these securities will provide investment options and opportunities for long-term investors, such as individuals and institutions in the growing insurance and pension industries and other investment vehicles such as mutual funds and annuities,” the document outlined.
The Government will continue to build on the progress made and take the necessary steps to further reduce the foreign currency exposure of the domestic debt portfolio. “Except under extraordinary circumstances, the government will continue to limit the use of US$-denominated and US$-indexed instruments in the domestic market in order to further reduce the foreign currency exposure of the domestic debt portfolio towards internationally acceptable levels over the medium-term,” the Ministry Paper pointed out.
Subject to market conditions, during 2006/07 auctions will be conducted on a monthly basis, with issues across a wide range of maturities. The size of these auctions will be gradually increased and where possible, issues will be re-opened to create benchmarks.
According to the document, experience has shown that transparency and predictability have helped to lower the government’s borrowing costs and strengthen credibility. Therefore, increased transparency and predictability will continue to be the guiding principle for the government’s issuance strategy.
This transparency will continue to be enhanced by: monthly publications of comprehensive external and domestic debt data; advanced notices of upcoming debt issues; quarterly announcements of government’s borrowing and requirements; monthly schedules of market issues; timely publication of the results of market issues; and quarterly reports on debt-related developments.
These, along with the debt management strategy and relevant investor information, will continue to be made available in the print media and/or electronically on the Ministry’s website.