currency or interest rate composition, and large unfunded contingent liabilities, has also been an important factor in inducing or propagating economic crises in many countries. Arguments in favor of sound debt management are even more compelling in small states who must mitigate the broader risks to which their economies are exposed: limited economic opportunities, lack of diversity, disproportionately high infrastructure and transaction costs, and high vulnerability to natural disasters, all of which may heighten the risk of significant and rapidly worsening macroeconomic and debt dynamics.

Against this backdrop the paper identifies aspects of debt management where small states do relatively well and those where they perform poorly and looks at the underlying factors at play. It elaborates on some of the successful measures taken by small states to enhance debt management performance and considers how these may be applied more broadly in other small states. In this context it offers a number of practical suggestions for policymakers on ways in which debt management capacity could be strengthened. These include drawing on the debt management experience of other countries, using the findings of the DeMPA reports to identity aspects of debt management where some capacity has already been built and small changes could provide a rapid and important pay-off and pooling of resources, through regional cooperation, to get efficiency and cost saving benefits in areas such as preparation of operational manuals, debt reports and bulletins. The paper draws attention to the need to maximize the gains to be got from the application of information technology. It also highlights the importance of proper identification of staff training requirements and appropriate selection of courses as well as concerted follow through on the application of skills and knowledge acquired to improve the national debt management processes. Finally, the report presents some proposals for widening the financing options of debt managers through the development of domestic debt markets, essentially highlighting policy options that have worked in some small states.

# **Background: Some Characteristics of Small States**

<mark>Forty-eight small states are members of the World Bank</mark><sup>3</sup> <mark>. They are located across the globe with 15 in Asia and the Pacific, 12 in the Caribbean, 11 in Sub-Saharan Africa, and 10 scattered across other regions. Thirteen of these 48 small states are classified as high income and fall outside the scope of this paper</mark><sup>4</sup> <mark>. Its focus is on the 35 small states classified as low and middle income and, within that group, the 17 small states for which the DeMPA exercise has been</mark>

> 3 <mark>Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Belize, Botswana, Brunei, Bhutan, Cape Verde, Comoros, Cyprus, Djibouti, Dominica, Equatorial Guinea, Estonia, Fiji, Gabon, The Gambia, Grenada, GuineaBissau, Guyana, Iceland, Kiribati, Lesotho, Luxembourg, Maldives, Malta, Marshall Islands, Mauritius, Federated States of Micronesia, Montenegro, Namibia, Palau, Qatar, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Seychelles, Solomon Islands, Suriname, Swaziland, Timor-Leste, Tonga, Trinidad and Tobago, and Vanuatu</mark>

> 4 Saint Kitts and Nevis was reclassified to high income in FY13 but for analytical purposes it is treated in this report as upper middle income, its income classification at the time the DeMPA was conducted.

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