# **5. Policy discussion**

Containing public debt vulnerabilities has typically led to a policy discussion that puts a lot of emphasis on debt management issues such as: (a) policies/mechanisms to enhance debt-capacity building and transparency —enhancing procedures of public debt recording, monitoring and reporting to avoid “debt surprises”— and (b) strengthening debt management practices —where the World Bank can play a role in disseminating best practices in the management of risks associated to currency and interest rate fluctuations, refinancing, contingent liabilities, and SOE debt, among others.

Debt management, however, is only one dimension of a more holistic strategy to reduce debt vulnerabilities. That strategy should include: (a) practices that help manage the risks of the balance sheet of the government —including public assets and non-debt liabilities (contingent liabilities), and (b) policies that foster the efficiency of public investment.

## _Building debt management capacity_

Several countries in the region have a narrow coverage of public debt data (for instance, data on domestic arrears and contingent liabilities of state-owned enterprises) and limit data transparency. The lack of data and/or transparency hinders the debt sustainability analysis and the assessment of fiscal risks, thus elevating the probability of debt surprises (e.g. Mozambique, Republic of Congo, and Zambia). Resorting to borrowing from non-traditional creditors has also led to opacity on the terms and conditions of loans (especially, collateralized loans).

In this context, international financial institutions can provide technical assistance and develop tools to build capacity to record, monitor, and report debt in Sub-Saharan African countries. The World Bank should continue improving upon its tool to monitor a country’s capacity and performance on debt recording, monitoring and reporting —that is the Bank’s Debt Management Performance Assessment (DeMPA). There is also scope to enhance accessibility and user friendliness of the public debt data, and encourage countries to improve reporting and compliance with established statistical standards.

There is concern of greater vulnerability of domestic debt markets amid the rise in gross public debt denominated in domestic currency (and given the lack of depth of these markets). According to DeMPA, less than 50 percent of countries in the region fullfill the minimum requirements for sound international standards in the legal framework for debt management.<sup>14</sup> For domestic borrowing, only 40 percent of the countries in the region adhere to sound practices, and only 22 percent meet the minimum requirements for effectively managing loan guarantees, on-lending, and the issuance of derivatives.

At the same time, progress has been achieved in several areas: the number of countries that have prepared and approved a formal debt management strategy, based on robust cost and risk analysis, has increased significantly. The percentage of countries following sound practice in debt recording

> 14 The results discussed here are based on a sample of 22 Sub-Saharan African countries that have more than one assessment.

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