available and monitored, and the cash was neither invested nor integrated within the domestic debt borrowing program. In some countries, although several government accounts were flush with liquidity, the government still borrowed, incurring interest costs while not earning any returns on its surpluses. The DeMPA findings revealed lack of analytical capacity to forecast cash flows and manage cash balances across several countries, along with the lack of single treasury accounts that could enable sovereigns to better manage costs.

Operational risk management practices were either absent across countries or, if present, inadequate.<sup>26</sup> Among the assessed countries, only one quarter of the countries met with the minimum requirements<sup>27</sup> for “debt administration and data security” and only six percent of countries demonstrated effective practice for aspects relating to “segregation of duties, staff capacity and business continuity”. The sovereign debt portfolio is usually the largest in the country and mitigating the risk of fraud, human error and market risk are critical given the high value of the financial transactions involved and the potential consequences of substantial financial loss. In addition there are also severe reputational and political risks associated with operational error or failure. Deficiencies on this front are compounded by the lack of accurate and secure debt records and transparent and regular reporting.

In general, the results point to the need for more robust analytical capacity in the assessed countries. Since the majority of the sample is LICs, this could stem from the lack of human capital to undertake the necessary analytical work. This points to the increased need for technical assistance and strengthening in these areas coupled with the procedures and institutional arrangements necessary to maintain a functioning DeM program. As the results show, areas of administration, documentation and monitoring and evaluation also need progress.

# **b. The Medium‐Term Debt Management Strategy (MTDS)**

Taking a more strategic approach to evaluating financing choices requires greater integration of debt management strategy formulation and broader macroeconomic management. As its name suggests, the MTDS<sup>28</sup> provides a framework for formulating and implementing a debt management strategy over the medium term, typically a 3 to 5 year horizon, and is primarily focused on determining the appropriate composition of the debt portfolio. MTDS is useful for illustrating a government’s cost and risk tradeoffs associated with different debt management strategies and for managing the risk exposure embedded in a debt portfolio, in particular the potential variation in debt servicing costs due to exogenous developments and their budgetary impact.

> 26 A factor in the comparative neglect of this area of public DeM in LICs could well be that most borrowers access multilateral and bilateral sources of finance. Operational risk is mitigated in these cases as the lending institutions have strong fiduciary safeguards in place (although this is clearly not sound practice as the borrower should be able to independently verify and manage the risk). This could well be a reason for the low priority bestowed on this critical area in several LICs and an explanatory factor for the low DeMPA scores.

> 27 DeMPA indicators are scored on a scale from A to D. Score C or higher indicates that the minimum requirements for effective debt management under the DeMPA have been met; while score D indicates the absence of the same. 28 The MTDS framework was developed jointly by the World Bank and the IMF, in consultation with other providers of assistance. It consists of a toolkit to assist governments in analyzing and developing an MTDS, taking into account macroeconomic and market environments.

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