The Government Successfully Borrows in the Domestic Market: How to Optimize this Process and to Reduce Debt Management Costs

Report ID: 118

The National Audit Office of Lithuania carried out an audit of the management of the debt on behalf of the State, during which the efficiency of the management of Government securities (hereinafter – GS) issued in the domestic market was assessed. The audit covered the period between 2006-2009; in some cases data of 2010 was also used for comparison. The Government borrows in the domestic market through issuance of bonds – GS with maturity of over one year , with maturity of 3, 5, 7 and 10 years, and Treasury bills – GS with maturity of under one year, with maturity of 1, 3, 6, 9 and 12 months.

Domestic GS comprise about 30 per cent of the debt on behalf of the State. Until the end of 2008, GS were issued in the domestic market only through auctions. Until February 2009, in the domestic market of Lithuania GS auctions were organized by the Bank of Lithuania, later on – AB NASDAQ OMX Vilnius. In 2008 with the start of economic crisis, the Government started to issue GS in the domestic market not only through auctions, but also through private placements concluding a contract with creditors, as well as resumed the issuance of savings bonds. The Ministry of Finance successfully borrows in the domestic market: organization of GS auctions conforms to recommendations of the World Bank and International Monetary Fund, as well as best foreign practice. During the audit no substantial problems related to the borrowing and debt management of the Ministry of Finance were detected; issues indicated in the report and recommendations given would allow to improve the efficiency of the GS management: i.e., to develop the domestic market, increase the demand of GS, which in the long run would help to reduce the debt management costs. The Medium-Term Debt Management Strategy of the Government does not provide for the objective to develop and maintain the efficient domestic market; no analysis was conducted as to what is the maximum possibility to borrow in the domestic market. Establishment of the above mentioned objective and clear means to implement it would allow increasing the demand of GS issued in the domestic market, independence from foreign market and reduce the debt management costs in the future.

GS auctions in the domestic market are insufficiently regular and predictable. In 2nd half of 2006 – 2009 the Ministry of Finance systematically cancelled previously announced auctions, which had a negative impact on auction participants and investors. Such a practice raises the distrust in auction organizers, hampers the market development, and increases the debt management costs in the long–run. The Ministry of Finance does not announce the amount of the issued GS; issuing GS in the domestic market, did not always follow the established borrowing programmes and calendars. Appropriate planning of the borrowing need, announcement of the information about how regularly Treasury bills and bonds will be issued and about the planned amount of the GS issue would enable to attract more investors and develop the domestic market, as well as ensure the transparency of the Government plans. The Ministry of Finance does not use auction evaluation indicators, which show the interest of investors in Government securities with various maturities. Use of Bit-to-Cover or other evaluation indicators showing the interest of investors in auctions would allow attracting more investors. The audit pointed out that issuance and maturity dates of GS were not always closely linked to the need for public cash on respective days. The Ministry of Finance should ensure the balance between the regular nature of borrowing and need for public cash: it would enable to optimize the planning of borrowing and help to reduce the costs of interests. In order to eliminate the possible risk of settlement between auction participants, to ensure the proper understanding of information, stability and transparency, requirements to auction participants issued by the Ministry of Finance should set the minimum and maximum amount of GS, which has to / may be purchased by one auction participant / investor in one auction, as well as to set requirements for non-competitive bids. Seeking to attract the interest of possible new auction participants and potential investors, the Ministry of Finance should announce more information on its website related to the GS issuance process, carrying out of auctions; explain what information has to be submitted along with the bid for GS by auction participants, as well as particularities of various bids and advantages to individual groups of investors. We want to point out that issues set out in the report and the terminology used is technical, specific and in many cases meant only for experts.

Transregional Programme on Public Debt Management Audit

Report ID: 122

Objective: To enhance both professional staff development and organisational capacity of target SAIs in public debt management audit

Guide for Auditing Public Debt Management

The Guide aims to provide practical procedures to conduct audits on nine specific public debt management topics:

(1) Public debt legal framework,

(2) Organisational arrangement,

(3) Determination of public borrowing needs,

(4) Public debt management strategy,

(5) Borrowing activities,

(6) Public debt information systems,

(7) Debt servicing,

(8) Debt reporting, and

(9) Contingent liabilities, with emphasis on loan guarantees.

The nine topics were those discussed in the PDMA e-learning course, and were selected as topics for pilot audits by 29 participating SAIs in the Programme.

The primary intended users of the Guide are staff in Supreme Audit Institutions (SAIs) with little or no knowledge of, or experience in public debt auditing.

SAI auditors who are completely new to public debt management auditing are advised to build their understanding of the subject of public debt prior to using this Guide. One option in this regard would be to study the IDI’s training materials on public debt management auditing.

Focusing more in the context of a performance audit, this Guide also provides audit guidance in the context of financial and compliance audit, particularly in the audit planning and reporting phase.

Aid through budget support (RiR 2007:31)

Report ID: 205

The Riksdag (Swedish Parliament) adopted a new Policy for Global Development in 2003. This policy established a new objective for development cooperation: to contribute to an environment supportive of poor people’s own efforts to improve their quality of life. At the same time, the Riksdag decided that development aid should amount to 1 per cent of the Swedish gross national income. The growing importance of budget support can be seen against this background. In addition, this development is also a result of international agreements to the effect that aid should increasingly be given in more general forms and that the handling of aid should be harmonised among donor countries.

Budget support is financial support provided to the national budget of a poor country in order to support poverty reduction in that country. The choice of this type of support is based on the assumption that aid will be more effective if it is governed to a greater extent by the recipient country’s own priorities rather than by requirements imposed by donors.

From the perspective of recipient countries, it is important that budget support is predictable. This requires that decisions on budget support be based on long-term positions which, in turn, must build on careful analysis.

The effectiveness of budget support depends on two factors: first, the extent of political will in the recipient country to implement measures to reduce poverty and, second, the effectiveness of economic policy and public financial management in that country. For budget support to be an appropriate type of aid, certain basic conditions with regard to the economic policy and public financial management of the recipient country must be met. In addition, the recipient country must have a poverty-reduction strategy whose content is deemed to be credible and relevant.

The Riksdag has emphasised that the Government should create conditions ensuring that decisions on budget support can be based on a solid foundation, given that budget support constitutes support to the overall policy of the recipient country. The Government has authorised Sida (Swedish International Development Cooperation Agency) to prepare matters, enter into agreements and make disbursements in the field of budget support. This delegation of responsibility makes heavy demands on the ability of the Government Offices (i.e. ministries) and Sida to determine whether the conditions for the provision of budget support are met.

Auditoría coordinada de los ingresos del gobierno por la explotación y producción de hidrocarburos

Report ID: 229

La auditoría de desempeño sobre la fiscalización de los ingresos públicos provenientes de la explotación y producción de petróleo y gas natural en Brasil, Colombia y Perú fue realizada por las Entidades Fiscalizadoras Superiores de los precitados países. Esta auditoria se realizó en la modalidad de auditoría coordinada, en el marco de las actividades del Comité de Creación de Capacidades de la OLACEFS, y contó con el apoyo de GIZ.

La producción de hidrocarburos es una actividad económica de gran relevancia para muchos países latinoamericanos porque, además de su importancia energética estratégica, genera impactos significativos en los ingresos públicos, principalmente por el recibo de participaciones gubernamentales. Debido a eso, la correcta fiscalización de esos recursos, por el Estado, se revela una cuestión sensible.

El objetivo de la auditoria coordinada, bajo el enfoque de desempeño, consistió en evaluar las condiciones normativas, institucionales y operativas en que actúan los organismos y entidades gubernamentales encargados del control de la medición de la producción de petróleo y gas natural y del control del cálculo y del pago de las participaciones gubernamentales provenientes de esa producción, identificando eventuales obstáculos y oportunidades de mejoría, así como buenas prácticas que contribuyan para el perfeccionamiento de la gestión.

Además, en el marco de la auditoria se realizó una análisis de la experiencia de la auditoría coordinada, a partir de a) las perspectivas y principales resultados de la auditoría para los países; b) las perspectivas y principales resultados de la auditoría para las EFS y c) la opinión sobre la experiencia de la auditoría coordinada.

FUENTE: https://www.olacefs.com/wp-content/uploads/2015/06/003.pdf

Purchase of Province-Guaranteed Bonds by the Carinthian Compensation Payment Fund

Report ID: 352

From March to October 2018, the Austrian Court of Audit (ACA) and the Court of Audit of Carinthia carried out an audit of the agreement on the purchase of province-guaranteed bonds by the Carinthian Compensation Payment Fund (Kärntner Ausgleichszahlungs-Fonds) pursuant to Section 2a of the Financial Market Stability Act (Finanzmarktstabilitätsgesetz). In this context, the provincial parliament of Carinthia addressed an audit request to both the ACA and the Court of Audit of Carinthia.

The audit institutions performed the audit jointly in order to prevent a duplication of efforts. The audit aimed at presenting the initial situation and at assessing the development and structure as well as the approval, financing and implementation of the second offer. The auditors furthermore looked into the costs and the remaining economic risks. The audited period essentially spanned the years from 2015 through 2017. 

Central recommendations

1. The Carinthian Compensation Payment Fund should step up its efforts in order to attain an adequate premium reduction for the liability insurance of the executive board.
2. In the interest of encouraging competition and compliance with the principles of economy and efficiency, the Carinthian Compensation Payment Fund should award service contracts only via a public procurement process or after at least three reference offers have been solicited.
3. As regards the negotiations with the Heta Asset Resolution AG (HETA), the Carinthian Compensation Payment Fund should, against the backdrop of the interim distributions that have in the meanwhile taken place, carry out a legal assessment of a rapid and appropriate write-down and the possibility of withdrawing the HETA securities in order to achieve a subsequent reduction in custodian fees.
4. The province of Carinthia and the Carinthian Compensation Payment Fund should carry out an analysis of possible further steps of the hold-outs or other creditors, taking into consideration the cost-benefit ratio, or commission suitable lawyers or experts to ensure best possible pre-paredness for such judicial or extrajudicial steps.

Source: https://www.rechnungshof.gv.at/rh/home/news/news/news_1/Erwerb_von_landesbehafteten_Schuldtiteln_durch_den_Kaerntne.html