The first step in developing an MTDS is to articulate the country’s DeM objective and scope.<sup>29</sup> Ideally, DeM objectives are stated in terms of meeting the government’s financing needs in accordance with the cost and risk preference of the government. Extending the maturity profile of the domestic portfolio and the development of the domestic debt market are also common secondary objectives over the medium term. However, in most of our sample countries, there is lack of clarity in the objectives for managing the debt. This is important as the MTDS operationalizes these objectives; when examining the alternative strategy options, the debt manager needs to know whether the government is willing to assume higher costs to achieve lower risk or to achieve other goals, such as the development of the domestic debt market.

In most countries in the sample, governments follow an informal debt management strategy that is not explicitly approved by the Minister of Finance, and is not based on an analysis of cost and risk. For LICs, this informal strategy has sought to maximize concessional borrowing due to the favorable interest rate and maturity profile of such borrowing. On the domestic front, the strategy has been to reduce refinancing risk, as the share of short‐term debt in total domestic debt has been high in many countries. These informal strategies have typically been developed heuristically, which is important even when deriving a debt management strategy based on quantitative analysis.

**Table 3: Key Risk Indicators of Existing Debt Portfolio, 6 Sample Countries**

||A|B|C|D|E|F|
|---|---|---|---|---|---|---|
|Outstanding debt to GDP (%)|48%|71%|23%|33%|43%|12%|
|**Exchange rate risk**|||||||
|Share of domestic debt in total debt (%)|46%|42%|36%|29%|51%|58%|
|**Refinancing risk**|||||||
|ATM Domestic debt (Years)|1.6|3.9|1.0|5.3|4.3|2.7|
|ATM External debt (Years)|16.2|15.8|12.5|20.6|11.5|10.9|
|Share of domestic debt maturing in next 12 months in<br>total domestic debt (%)|38%|21%|54%|12%|39%|33%|
|**Interest rate risk**|||||||
|Share of fixed rate debt in total debt (%)|95%|99%|79%|100%|100%|98%|
|ATR Total debt (Years)|8.6|10.9|8.4|14.7|7.7|5.9|
|Share of debt that will refix interest rate in next 12<br>months in total debt(%)|39%|11%|56%|9%|25%|24%|

Source: Author’s calculations, sample of MTDS countries As a reflection of the existing DeM strategy, the existing debt portfolio typically displayed an external debt composition that is dominated by official sector concessional financing in the sample of MTDS countries. However, the proportion of external to domestic debt and the relative depth and breadth of the domestic markets varied widely (see Table 3). In general terms, the countries that underwent HIPC 29 For the framework for developing an MTDS, see “Guidance Note (GN) for Developing a Medium‐Term Debt Management Strategy” (2009). It is important to note that a quantitative analysis is not necessary to have a good MTDS in place. If countries followed the GN and assessed all the various considerations to derive candidate strategies, it is possible to derive an acceptable set of strategies for final consideration by the policy makers. Even if some outcomes in terms of ranking will be obvious, it is useful to explicitly quantify the cost and risk consequences of a particular strategy to understand the opportunity cost for adopting inefficient financing strategies. It is also useful to explicitly quantify the marginal cost of developing the domestic debt market, if this is an explicit objective.

16