# **D. Public Debt Strategies:  Cost and Risk of Debt Portfolios**

**Public debt management policies can influence Mauritania’s prospective fiscal and debt performance** . After Mauritania benefited from debt relief and largely reduced the burden of public foreign liabilities, the debt management strategy has been seeking to exploit the external, concessional financing sources available, and to expand gradually the domestic market for short-term government securities. Currently, foreign liabilities represent 90 percent of the total public debt, most of it instrumented through multilateral and bilateral loans, often contracted on concessional terms. Domestic liabilities, on the other hand, are chiefly short-term T-bills. Because of the large share of concessional debt denominated in foreign currencies, the interest bill is fairly light—in the order of 1.5 percent of GDP and just 5 percent of the total public expenditure—but the _exposure_ to currency fluctuations is significant. Besides, despite of the domestic debt being small, the need to roll it over at short maturities induces a large _exposure_ to refinancing risk and interest rate risk. Weighting so heavily in the built-up of exposure to macroeconomic shocks—especially to exchange and interest rates, the debt management policies can influence Mauritania’s fiscal and debt outcomes in the future. Changes in the borrowing strategies cannot be ruled out—e.g., non-concessional borrowings to finance infrastructure projects seem to be on the rise and initiatives to develop the domestic market for government securities are being considered—and thus assessing alternative options for public debt management is justified.

**A Medium-Term Debt Management Strategy (MTDS) Report prepared in 2012 characterized Mauritania’s public debt portfolio in terms of its composition and cost-risk profile.** The MTDS Report analyzed the composition and cost-risk profile of Mauritania’s public debt as of end-2011, with the main findings summarized in Box 1. The MTDS constructed stylized, representative debt instruments to adequately describe the financing terms and cost-risk characteristics of the various loans and securities involving a financial liability of the Mauritanian government. These instruments are listed in Table D1, which also reports the outstanding stocks as of end-2011—obtained from the MTDS Report—and as of end-2013—estimated using recent debt data.<sup>13</sup> The characterization of the public debt portfolio made in the MTDS also applies to the government debt as of end-2013 because the new borrowings in 2012 and 2013 did not involve large issuances of financial instruments very different from those existing as of end2011.

**The MTDS Report assessed four debt management strategies for 2012-15.** A _debt strategy_ is the combination ( _mix_ ) of financial instruments issued by the government to cover its gross financing needs—

> 13 The MTDS Report maps all domestic government securities, whose maturities are less than one year, to a oneyear T-bond, thus realistically assuming that instruments are rolled over _within_ the year in volumes that preserve the structure of domestic debt at the beginning of that year. The mapping of external debt instruments is more detailed, as seven different, stylized categories are used to represent the universe of foreign loans.

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