Introduction

Debt sustainability is intimately linked to credibility and the quality of institutions related to debt management. Credibility passes through effective debt management authorities and institutions. The significance of good governance for debt management has been widely recognized by leading international development agencies and academics. ¹

Debt management has two dimensions:

(i) The Executive Debt Management or the macro-economic dimension.

(ii) The Operational Debt Management or the micro-administrative dimension.

In the former, debt is seen as an integral part of a country's overall macro-economic management; the latter dimension is part of a broader process of public administration and management.

An effective debt management encompasses issues such as:

(i) The administration.

(ii) The architecture of an office and its functioning.

(iii) Communication and information flows.

(iv) Legal authorizations.

(v) Analysis of credit, balance of payments and budget.

(vi) Controlling borrowing and defining strategies.

(vii) Computerization of information systems as well as training and retaining staff.

The present module aims at sketching out the requirements of an effective management of a country's external public and publicly guaranteed debt (which includes domestic debt). Given the importance of domestic debt in many countries, its association with public finance and the necessity to incorporate it into the overall management of government's liabilities, the concept of total public debt is used in this module, meaning the inclusion of both external as well as domestic debt. The final section of this module is devoted to the rise of domestic liabilities.

The aim of Module 2 is to present in Section I:

(i) The framework for an effective debt management.

(ii) The role and operations of a debt management office.

(iii) The setting of a DMO in a Front, Middle and Back Office structure.

In Section II, we present the two main softwares for sovereign and public debt management:

(a) The UNCTAD DMFAS system.

(b) The Commonwealth COMSEC system.

Section III deals with the rise of domestic liabilities.

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¹ The quality of domestic institutions and the nature of the political system. A number of studies have found a relationship between the quality of fiscal institutions—the rules and regulations by which budgets are constructed and implemented—and fiscal outcomes. See, for example, von Hagen (1992) and von Hagen and Harden (1995). Alesina and others (1998) find the nature of the budget process strongly influences fiscal outcomes in Latin America. See also the April and September 2003 IMF World Economic Outlook for an analysis of the relationship between growth, debt and institutions.