Debt Management Performance Assessment Methodology DPI Tables and Guidance 2021 Edition Contents DPI-1 Legal Framework – Existence, Coverage, and Content of the Legal Framework 2 DPI-2 Managerial Structure 4 DPI-3 Debt Management Strategy 7 DPI-4 Public Debt Reporting 11 DPI-5 Audit 15 DPI-6 Coordination with Fiscal Policy 17 DPI-7 Coordination with Monetary Policy 20 DPI-8 Domestic Borrowing 23 DPI-9 External Borrowing 27 DPI-10 Loan Guarantees, On-Lending, and Derivatives 30 DPI-11 Cash Flow Forecasting and Cash Balance Management 34 DPI-12 Debt Recording, Monitoring and Payments 37 DPI-13 Data Security and Business Continuity 40 DPI-14 Debt Related Records 44 DPI-15 Debt Management Information Systems (DMIS) 46 Tables Table 1. Scoring: Legal Framework (DPI 1) 2 Table 2. Scoring: Managerial Structure (DPI 2) 4 Table 3. Scoring: DMS and ABP (DPI 3) 7 Table 4. Scoring: Public Debt Reporting (DPI 4) 11 Table 5. Scoring: Audits (DPI 5) 15 Table 6. Scoring: Coordination with Fiscal Policy (DPI 6) 17 Table 7. Scoring: Coordination with Monetary Policy (DPI 7) 20 Table 8. Scoring of Domestic Borrowing (DPI 8) 23 Table 9. Scoring of External Borrowing (DPI 9) 27 Table 10. Scoring: Loan Guarantees, On-Lending, Derivatives (DPI 10) 30 Table 11. Scoring: Cash Flow Forecasting and Cash Balance Management (DPI 11) 34 Table 12. Scoring: Debt Recording, Payments (DPI 12) 37 Table 13. Scoring: Data Access, Backups, and IT Infrastructure (DPI 13) 40 Table 14. Scoring: Debt Records (DPI 14) 44 Table 15. Scoring: Debt Management Information Systems (DMIS)(DPI 15) 46 Debt Performance Indicators: Requirements and Guidelines Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-1 Legal Framework – Existence, Coverage, and Content of the Legal Framework Table 1. Scoring: Legal Framework (DPI 1) Score Requirements by DPI 1.1. Central Government’ legal framework: The primary or secondary legislation must specify: 1. The authorization to borrow; 2. The authorization to issue guarantees and undertake on-lending operations; C 3. The definition of debt instruments used by the Central Government; 4. The purpose of borrowing. 1.2. Public Sector Entities’ legal framework: 1. Require Non-Financial Public Sector (NFPS) bodies to inform the Central Government of their borrowing activities (see guidance). 1.1. Central Government’ legal framework: The primary or secondary legislation must include: 1. DM objectives; 2. Requirement to publish debt reports; B The minimum requirement for • To provide accountability to the public and to the legislature. score C is met. In addition 1.2. Public Sector Entities’ Legal Framework: The primary or secondary legislation must: 1. Require the Central Government to report the debt of NFPS bodies (together with their guarantees); 1.1. Central Government’ legal framework: The primary or secondary legislation must require: 1. The development and publication of a medium-term DMS; A 2. A framework to guide the management of guarantees/on-lending operations. The minimum requirement for score B is met. In addition 1.2. Public Sector Entities’ legal framework: The primary or secondary legislation must: 1. Describe the role of the Central Government when giving NFPS bodies authorization to borrow (and to issue guarantees). 1.1. The minimum requirement for score C is not met. D 1.2. The minimum requirement for score C is not met. 2 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 1) Guidance notes when determining compliance with the requirements Guarantees/on-lending framework: A set of rules and procedures (primary or secondary legislation) comprising: (i)sound governance arrangements, including the legal framework and institutional setup, where the guarantees are defined, the purpose of the guarantees/on-lending is described, and the entities or sector to benefit from the guarantees/on-lending are specified; (ii) 1.1 A institutional and technical setup to evaluate the contingent liabilities from guarantees/on-lending; (iii) tools to manage and monitor the CLs, such as setting limits on guarantees, deciding on new guarantees by means of guidelines; (iv) charging guarantees/on-lending fees/spreads; (v) making proper arrangements to pay when necessary. Report DM operations, issuance of guarantees, on-lent funds and debt evolution on a yearly 1.1 B basis at least. See DPI-4. 1.2 B NFPS entities may provide guarantees to their own subsidiary entities. The legal framework is defined as those provisions contained in the primary and secondary legislation, and in applicable administrative regulation. If the country’s legal framework contains 1.1 C more requirements than listed in the DeMPA methodology, the additional provisions will not affect the scores. For the purpose of reporting, aggregate figures on stock and currency are acceptable, e.g., 1.2 C domestic and foreign-currency denominated. 3 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-2 Managerial Structure Table 2. Scoring: Managerial Structure (DPI 2) Score Requirements by DPI 2.1. CG Borrowing and Debt-related Transactions: 1. There is coordination between DM entities that undertake borrowing transactions. This can be evidenced by at least one of the following: • Minutes of committee meetings where all DM entities are represented; • Memoranda or reports on planning and implementation of borrowing circulated among all DM entities; • Reporting structure for all DM entities to the same Principal Secretary, or similar position. C 2.2. Issuing CG Loan Guarantees/On-lending: 1. Loan guarantees/on-lending are prepared and undertaken by one or more government entities that regularly exchange information and closely coordinate their respective activities, both between themselves and with the DM entity/entities. This could be evidenced by: Minutes of committee meetings or memoranda, or reports circulated among all • entities on planning and issuance of guarantees/on-lending agreements, or an organizational structure where all DM entities report to the same Principal Secretary, or similar position; 2.3. Staff and HR issues: 1. The size of the staff is considered adequate; 2. Competitive selection is used for recruitment; 3. Turnover does not hinder core DM activities; 4. The staff is trained to perform core DM activities. 2.1. CG Borrowing and Debt-related Transactions: 1. There must be formal mechanisms to facilitate coordination between DM entities that undertake borrowing transactions. • The formalization could be evidenced by an agency agreement or any applicable B regulation clarifying the rights and obligations of the parties. The minimum requirement for score C is met. 2.2. Issuing CG loan Guarantees/On-lending: 1. There are formal coordinating mechanisms in place to guide the issuance and monitoring of guarantees and on-lent credits. • Specific regulation creating and defining the roles of coordinating committees and the exchange of information is typical evidence of formal coordination. 4 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 2.3. Staff and HR issues: 1. There are career plans and job descriptions; 2. There are codes of conduct and conflict of interest terms for staff to follow. 2.1. CG Borrowing and Debt-related Transactions: 1. Borrowing must be undertaken by a single DMO. • If any DM activities are conducted by other entities as agents for the DMO, the roles and obligations of the parties should be specified in a formalized agency agreement or in A secondary legislation. The minimum requirement for score B is met. 2.2. Issuing CG loan Guarantees/On-lending: 1. There is a principal entity responsible for preparing and undertaking loan guarantees/ on-lending. 2.3. Staff and HR issues: 1. Existing compensation schemes encourage staff retention. 2.1. The minimum requirement for score C is not met. D 2.2. The minimum requirement for score C is not met. 2.3 The minimum requirement for score C is not met. 5 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 2) Guidance notes when determining compliance with the requirements If the CB is formally in charge of conducting the operational work, following the decisions taken 2.1 A by the DMO, the DMO can be considered the single DM entity. “Preparing” means compiling the information required to issue the guarantee. For example: 2.2 A terms and conditions of the debt; credit risk analysis; compliance with the guarantee framework; authorizations required. The formalization could be evidenced by an agency agreement, the existence of a debt committee 2.1 B or any applicable regulation clarifying the rights and obligations of the parties. Further evidence of formalization includes regulation defining the roles of coordinating committees 2.2 B that meet regularly to exchange information on incoming guarantees/on-lending transactions. Information that typically needs to be shared among the entities: (a) price and risk; (b) actions to mitigate the financial effects of a default; (c) monitoring the risk throughout the life of the 2.2 C guarantee; (d) coordinating borrowing of the beneficiary and Central Government; (e) recording and reporting. If no guarantees have been issued in the last five years, the dimension should be rated N/A, even 2.2 C if there is a legislative and regulatory framework in place. 6 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-3 Debt Management Strategy Table 3. Scoring: DMS and ABP (DPI 3) Score Requirements by DPI 3.1. Content: There is a medium-term DMS covering all existing and projected central government debt, including borrowing from the central bank, based on the DM objectives. 1. The time horizon for the DMS is at least three-years and should be updated and published annually; 2. The DMS document must include: a. The scope for DM b. The composition of existing debt and the risks being managed and an assessment of the previous strategy’s implementation; c. Fiscal and debt projections; assumptions about interest and exchange rates; and constraints on financing choices; d. Brief description of the analysis undertaken and rationale for the chosen DMS; e. The DMS, expressed at least as guidelines for the preferred direction, over the horizon period, of specific indicators for interest rate, refinancing, and foreign currency risks; f. Description of how DM objectives will be achieved (e.g., measures aimed at supporting domestic debt market development). 3.2. Decision Making and Publication: C The requirements for the C Score are: 1. The DMS is prepared by the DMO or by coordinating entities; 2. The views of the central bank are obtained; 3. The strategy is formally approved by the cabinet, council of ministers, or minister/vice- minister of finance; • The assessment may consider other competent authority more senior than the proponents of the DMS; 4. The DMS is published on the official website(s); 3.3. ABP: For the C level, the ABP must observe the following: 1. Content: (this may be expressed as ranges) a. Forecasted gross borrowing volume, split between foreign and domestic sources; • If domestic retail debt share is 5 percent or more of total debt, the forecast is split between wholesale and retail domestic borrowing; 7 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI b. Forecasted split between the main types of external financing (e.g., international bond issuance, loans); c. Forecasted split between the main types of domestic financing (e.g. commercial loans and securities, such as T-Bills, or T-bonds. 2. Reflect updated budget reviews- when applicable; 3. Be published on an official website (s). 3.1. Content: 1. The DMS is based on quantitative analysis of costs and risks that describes the evolution of debt service flows and borrowing alternatives under the expected values of future interest and exchange rates. A range of possible values for these variables is also provided. 2. The DMS includes realistic target ranges for indicators of the interest rate, refinancing, and foreign currency risks. 3.2. Decision Making and Publication: 1. The DMS is well integrated in the budget document and the medium-term expenditure or B The requirements budget framework. for score C are met 3.3. ABP: For a B score the ABP is required to: 1. Include detailed analysis of how it will support the implementation of the DMS. • Specifically, there needs to be cost and risk indicators for the portfolio at the start of the year and estimates of those indicators at the end of the year that conform to the target ranges in the DMS; • The securities tenors are disclosed. 3.1. Content: 1. The DMS has specified risk exposure targets for the end of the horizon; the vulnerability of the debt portfolio to shocks in market rates will also need to be identified. 3.2 - Decision Making and Publication: 1. There is a regulation that specifies the content and quality of the strategy document, which include the elements listed at the 3.1 C level. A The requirements for score B are met • This is to help ensure that the quality of the DMS is maintained over time. 3.3. ABP: 1. The plan (ABP) is reviewed (internally) at least quarterly to take account of changes in borrowing requirements, domestic and external market conditions, and disbursement profiles. • When applicable the revised ABP is made public and deviations from the DMS are explained. 8 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 3.1. The minimum requirement for score C is not met. D 3.2. The minimum requirement for score C is not met. 3.3. The minimum requirement for score C is not met. 9 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 3) Guidance notes when determining compliance with the requirements 3.1 C and DM activities must be steered by the DMS/ABP respectively in practice, in order to score a C. 3.3 C Countries with significant financial assets should take these into account when conducting 3.1 C the cost and risk analysis, in keeping with the time horizon for holding such assets and the government’s ability to use them to hedge the risks of the gross debt portfolio. It is acceptable if the debt coverage is the GG or the PS provided the strategy can be implemented. 3.1 C Note that not all financial estimates need to be published (see sub-DPI 3.1.c2.d) The analysis needs to provide debt cost outcomes given the expected future interest and 3.1 B exchange rates, as well as a range of possible values for these variables. 3.2 A and Primary or Secondary Legislation 3.2 B Evidence of integration in the budget process would be cross-referencing in the DMS to the 3.2 B budget document and medium-term fiscal framework, and vice versa. There may also be minutes of committees or working groups with DM and fiscal/budget officials. Central bank consultation: there needs to be evidence that this occurred, e.g., minutes of meetings, exchange of letters/emails. The views may include liquidity conditions, monetary 3.2 C policy objectives and instruments; projections of interest and exchange rates; concerns about the impact of DM activities on the exchange rates and interest rates; views about DM and domestic instruments. The analysis needs to demonstrate that the estimated cost and risk indicators for the portfolio at 3.3 B the end of the year conform to the target ranges in the DM strategy. 10 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-4 Public Debt Reporting Table 4. Scoring: Public Debt Reporting (DPI 4) Score Requirements by DPI 4.1. Content and Timeliness (CG): 1. The CG debt report must include the following indicators (or equivalent): a. Stock: Composition of the debt: • Fixed, floating, FX-linked, Inflation-linked, other; • Denominated in local currency, USD, EUR, other; • Creditors: Commercial (loans vs securities), official bilateral, multilateral; residency, other. b. Flows: maturity profile • Total debt maturity by year • Share of debt maturing in the next 12 months. c. Cost measures: • Implied interest rate: Interest payments/stock at the end of the previous period or other cost measures. C d. Guarantees: Outstanding guaranteed debt by currency 2. Annual publication on the official website with a maximum lag of six months. 4.2. Reporting to the legislature 1. The DMO must publish on MoF website an annual report providing minimal information of outstanding central government debt and DM operations. • Debt operations should be described together with the risk characteristics of the debt portfolio. 4.3. Government Coverage: 1. A report covering central government debt is published on the official website. • If applicable, CG debt should include the stock of fiscal arrears and debt instruments. • The periodicity required is to publish the reports on an annual basis with a time lag of six months. 11 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 4.1. Content and Timeliness (CG): The CG debt report/bulleting must: 1. Include the following risk measures: a. ATR (Average time to Refixing) b. ATM (Average Time to Maturity) • Any similar indicators to capture debt structure are acceptable. 2. Include historical series of the main stock and flow indicators; • e.g., total volume, composition, share of debt maturing in the coming 12 months; B The minimum requirement for 3. It must be published at least semi-annually with a maximum lag of three months score C is met. In addition: 4.2. Reporting to the legislature: 1. The annual report describes actual performance compared to the approved DMS. • There is explicit evolution of targets and indicators included in the DMS. 4.3. Government Coverage: 1. A report covering all outstanding General Government debt is published on the official website. • If applicable, the debt stock is broken-down into domestic and external currency; • The periodicity required is to publish the reports on an annual basis with a maximum time lag of six months. 4.1. Content and Timeliness (CG): 1. The debt report must be published quarterly with a maximum data lag of 2 months. • The same set of indicators for the C and B level apply except for guarantees, which can A be reported semi-annually. The minimum requirement for score B is met. 4.2. Reporting to the legislature: In addition 1. A standalone annual report must contain assessments of the outcomes against the chosen DMS and the rationale behind it. • The report brings a fuller discussion of the deviations from the targets and implications for the future. 12 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 4.3. Government Coverage: 1. A debt report covering all outstanding non-financial Public Sector debt is published in the official website. • If applicable, the debt stock is broken-down into domestic and external currency; • The periodicity required is to publish the reports on an annual basis with a maximum time lag of six months. 4.1. The minimum requirement for score C is not met. D 4.2. The minimum requirement for score C is not met. 4.3. The minimum requirement for score C is not met. 13 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 4) Guidance notes when determining compliance with the requirements 4.3 The coverage also includes public guaranteed debt for these levels. A, B, C For scores of C and B, the annual report may be part of another document (for example, a report 4.2 C, B on budget execution or notes on financial statements), provided that it fully addresses the areas identified in this description. The distinguishing characteristics of 4.2 compared to 4.1 at the C level are: (a) the report contains a “thorough account” of DM operations and the rationale for them (even if there is no ABP or DMS); (b) the report is published or submitted to the legislature (either stand alone or as a section 4.2 C of a wider report). It would therefore be possible to score a C for 4.1, but not for 4.2. 4.1 and 4.2 cover only central government debt and debt that has been guaranteed by central 4.3 C government. Public sector debt may include entities that are not guaranteed by central government. 14 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-5 Audit Table 5. Scoring: Audits (DPI 5) Score Requirements by DPI 5.1. Frequency, comprehensiveness and disclosure of audits (Financial, Compliance, Performance): 1. An external financial audit of DM transactions is undertaken annually; 2. An external compliance audit of DM transactions has been undertaken within the past C two years; 3. Audit reports are publicly available within six months of completion. 5.2. Degree of commitment to address audit outcomes: 1. The DMO or other entity is required to produce an action plan to address external audits. 5.1. Frequency, comprehensiveness and disclosure of audits (Financial, Compliance, Performance): 1. There must be external performance audits of DM operational effectiveness within the past three years. This is typically evidenced by: • performance audits that broadly aim to check the achievement of the stated objectives and the actual impact of activities compared with their intended impact for important B aspects of the operations; The minimum requirement for • an examination of control systems and management of operational risks for important score C is met. In addition: aspects of the operations. 5.2. Degree of commitment to address audit outcomes: 1. The action plan (from the DMO or MoF) must specify the corrections and the timeframe to address audit findings. Example of evidence: • certain actions need to be implemented, normally prioritized items, as agreed by both parties. 5.1. Frequency and timeliness of audits (Financial, Compliance, Performance): A 1. The external performance audits are published within six months of completion of the audit. The requirements for score B are met. In addition: 5.2. Degree of commitment to address the outcomes from the audits: 1. All actions need to have been implemented within the agreed timeline, as defined in the plan. 5.1. The minimum requirement for score C is not met. D 5.2. The minimum requirement for score C is not met. 15 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 5) Guidance notes when determining compliance with the requirements Control System: established policies and procedures designed to show that engagements are performed in accordance with professional standards and applicable legal and regulatory 5.1 B requirements. Such policies and procedures shall include: (i) guidance to improve the quality and consistency of performance; (b) supervision responsibilities; (c) review responsibilities. The objective is to prevent the DM entity from responding only to relatively easy or less relevant 5.2 B findings of the auditor. External audit body - Entity outside of the executive branch, e.g., the audit body linked to the Legislative branch or a private company. 5.1 C Internal Audit body: Entity within the Executive branch, e.g., audit/compliance unit within the MoF or audit controller body. The number of transactions may be significant for active DMOs. It is acceptable if audits cover 5.1 C the most important transactions. An action plan is a roadmap to effectively close non-conformances. It brings details such as: (i) determination of root causes; (ii) description of the proposed corrective and preventive actions 5.2 C listed within the plan; (iii) application of preventive action to avoid future recurrence of the problem; (iv) the date the action is expected to be completed; (v) current status of the action items. In Low Income Countries, external auditors are typically more active than internal auditors. However, if the assessment team understands that the internal audit body is the relevant unit 5.2 C providing recommendation and these have been addressed by the government, the score should reflect this. 16 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-6 Coordination with Fiscal Policy Table 6. Scoring: Coordination with Fiscal Policy (DPI 6) Score Requirements by DPI 6.1. Provision of debt service forecasts: In order to achieve score C the forecasts must: 1. Cover all existing central government debt; 2. Be based on the macroeconomic assumptions used for the budget • for example, for interest rates and exchange rates; 3. Be based on the cash flow estimates used by the DMO for preparing the debt strategy (DMS). • If there is no DMS, the budget number (debt service) may be compared to the debt payment estimates (for principal and interest) provided by the DMO. • Deviations are accepted if they are well explained and justified, e.g., in the event of unexpected shocks. 6.2. Monitoring Fiscal Risks in the NFPS: 1. The CG (e.g., Fiscal area or other entity) regularly collects information (audited or unaudited) C about the largest public entities (e.g., SOEs/SNGs whose debt accounts for 75% of total SOE/SNG debt). 6.3. Availability of key macro and fiscal variables and DSA: 1. Key macro and fiscal variable estimates, as defined above, are shared with the DMO annually; 2. An analysis of the sustainability of public and publicly guaranteed debt for the NFPS (DSA) has been undertaken within the last three years and shared with the DMO; • Depending on the country and the data availability General (GG) or Central Government (CG) debt may be the relevant coverage for the DSA; 3. The DSA is updated when sizable new borrowing is programmed; • In the context of Low Income Countries, evidence of sizable new borrowing may be, for example, Eurobond insurance or a loan that is beyond the concessional financing limits; 4. The DSA is published. 17 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 6.1. Provision of debt service forecasts: In addition to a baseline forecast for principal and interest payments: 1. The fiscal authorities must be provided with a sensitivity analysis of debt service forecasts B to factor in changes in interest and exchange rates. The minimum requirement for score C is met. 6.2. Monitoring Fiscal Risks in the NFPS: In addition: 1. The CG has published a Fiscal Risk Statement for the NFPS in the past 3 years. 6.3. Availability of key macro and fiscal variables and DSA: 1. The DSAs are undertaken at least once every two years. 6.1. Provision of debt service forecasts: 1. The authorities must also be provided with a scenario analysis that tests the impact on the debt servicing costs of a severe shock or worst-case scenario. 6.2. Monitoring Fiscal Risks in the NFPS: A 1. The CG annually publishes a Fiscal Risk Statement for the NFPS; 2. The CG publishes financial ratios of the main SOEs to quantitively assess their performance. 6.3. Availability of key macro and fiscal variables and DSA: 1. The DSAs must be undertaken annually. 6.1. The minimum requirement for score C is not met. D 6.2. The minimum requirement for score C is not met. 6.3. The minimum requirement for score C is not met. 18 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 6) Guidance notes when determining compliance with the requirements Examples of scenario analysis could be the impact of a prolonged and severe economic downturn, 6.1 A a major exogenous shock, or a scenario that reflects the country’s main vulnerabilities. The criteria for the qualitative evaluation include the following: (i) Listing the large NFPS entities that could expose the country to fiscal risks (e.g., SOEs completely owned by the CG, list of PPP projects); (ii) Overview of the financial statements of the large NFPS entities (e.g., large SOEs, 6.2 A PPP projects of a significant size) through the evolution of the nominal figures - and the main financial ratios (e.g., DEBT/EBITDA; EQUITY/DEBT) - of the last 2 years; (iii) Overview of the debt (guaranteed and non-guaranteed) of the (largest) NFPS entities. Examples of sensitivity analyses could be the impact of a 10 percent depreciation of the local 6.1 B currency or a two percentage point increase in interest rates. When assessing “reasonable reliability”, a table contrasting debt service forecasts and outturns 6.1 C should be provided. In the event of unexpected shocks, larger deviations can be accepted but should be duly justified. Depending on the country other indicators such as the General or Central Government Debt may 6.3 C be the relevant indicator for sustainability analysis. Key macro variables are actual outcomes and forecasts of real, monetary, and external variables. The assumption regarding key macro variables should be coordinated between the budget 6.3 C forecasting process and debt servicing forecasts (in particular with foreign exchange and inflation rates if there is foreign currency or inflation-indexed debt). Key fiscal variables include: (a) the medium-term fiscal policy objectives and strategy; (b) total central government expenses, revenues, and debt level; and (c) the medium-term plan (three 6.3 C or more years) for total expenses and revenues. The objective is to assess the fiscal path over the years. The DSA has a scope of 10–25 years, and includes a baseline trajectory for the NPSD based on the 6.3 C assumptions underlying the macroeconomic framework. It also analyzes how the materialization of various risks would affect the public debt trajectory. For Low Income Countries, an external bond issuance or a loan that is beyond the concessional 6.3 C financing limits. 19 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-7 Coordination with Monetary Policy Table 7. Scoring: Coordination with Monetary Policy (DPI 7) Score Requirements by DPI 7.1. Separation between Monetary Policy and DM operations 1. Separation of CB and DM policy instruments for monetary policy implementation. • This separation can be clearly evidenced when countries use different policy instruments, such as repurchase agreements for monetary policy and government securities for fiscal policy; • In the case that the same instrument is used, for example, T-bills issued for both fiscal and monetary policy purposes, the proceeds of the monetary policy T-bills should be sterilized, and the amounts clearly separated in the reporting and accounting; • Separation requires that the decisions on the domestic issuance volume, pricing, tenor and calendar are made by the DMO. 2. Independent Decision Making: • Adequate policy separation: DM decisions are not perceived as influenced by insider information on interest-rate decisions at the CB, and the CB must aim to avoid perceptions of conflicts of interest in market operations. C 7.2. Coordination with the CB through regular information sharing on current and future debt transactions and the central government’s cash flows: 1. The information is shared on a monthly basis: • Current and future cash flows on domestic and external debt/current and future debt transactions; • Remaining government revenues and expenditures. 7.3. Limits to direct access of CB funding: 1. Access to financing from the CB has a ceiling limit imposed by the legislation; • Most countries establish a limit of up to 20% of government revenues. 2. Access to financing from the CB has a maximum tenor imposed by legislation; • CB financing is not a continuous funding source for the government • Most countries limit the tenor to up to 180 days. 20 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 7.1. Separation between Monetary Policy and DM transactions: 1. There needs to be a formal agency agreement between the DM and the CB to ensure a clear division of tasks and responsibilities. B The minimum 7.2. Coordination with the CB through regular information sharing on current and future requirement for score C is met. debt transactions and the central government’s cash flows: In addition: 1. The information is shared on a weekly basis. 7.3. Limits to direct access of CB funding: 1. By formal regulation, access to financing from the CB has a maximum of three months. 7.1. Separation between Monetary Policy and DM transactions: 1. The agreement between the DM and the CB is made public. A 7.2. Coordination with the CB through regular information sharing on current and future The minimum requirement for debt transactions and the central government’s cash flows: score C is met. In addition: 1. The information is shared on a daily basis. 7.3. Limits to direct access of CB funding: 1. By formal regulation, access to financing from the CB has a maximum of two weeks. 7.1. The minimum requirement for score C is not met. D 7.2. The minimum requirement for score C is not met. 7.3. The minimum requirement for score C is not met. 21 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 7) Guidance notes when determining compliance with the requirements Access to financing from the CB is, by law, prohibited or limited to emergency situations in which 7.3 A other funding operations are not viable, and, when used, the tenor is limited to two weeks. This could be done either by MoU- Memorandum of Understanding or SLA- Service 7.1 B Level Agreements. If the CB does not undertake borrowing in the name of the CG, or has different policy instruments 7.1 C from the DM, this indicates that there is separation of monetary policy and DM transactions. If it uses T-bills there should be a public statement showing the purposes of this borrowing. The institutional component needs to be present in the legal and operational framework allowing 7.1 C both CB and MoF to issue securities to the public. The CB needs to forecast changes in the TSA balance. Examples of information sharing from 7.2 C the DMO include: current and future cash flows on domestic and external debt/current and future debt transactions. Although there is no maximum ceiling or tenor, the limits cannot be too loose and must be binding. 7.3 C According to IMF (2012), most countries in the world limit the amount to up to 20% of Government Revenues and limit the tenors to up to 180 days, although it varies by country. 22 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-8 Domestic Borrowing Table 8. Scoring: Domestic Borrowing (DPI 8) Score Requirements by DPI 8.1. The publication of a borrowing calendar and issuance results: 1. The government prepares a calendar for domestic wholesale securities issuance that: a. specifies the issue dates and instruments for the following month; b. is published at least one day before the start of that month; c. is followed, other than in rare circumstance (see guidance), and any deviations are explained. 2. The results of issuance of domestic wholesale securities are published on the official website C e.g., MoF or its agent (see guidance). 8.2. Domestic market operations and clarity in rules and procedures: 1. The government uses market-based instruments and mechanisms to borrow in the domestic market; 2. The terms and conditions of all instruments are specified and available on official websites; 3. An issuance guide - for all types of domestic borrowing (e.g., auctions, syndication, taps, and retail) is available on official websites; 4. The staff responsible for domestic borrowing is able to articulate the steps required to borrow; 5. If a PD system exists, the incentives, obligations and eligibility criteria must be disclosed. 8.1. The publication of a borrowing calendar and issuance results: 1. The issuance calendar specifies the indicative volumes of securities to be issued; • For T-Bills used for cash management it is enough if only the dates and maturities are published. B 2. The results of securities issuance are published on the day of issuance to all participants at The minimum requirement for the same time. score C is met. In addition: 8.2. Domestic market operations and clarity in rules and procedures: 1. The DMO meets regularly with market participants (at least annually) to exchange views on borrowing plans and the domestic market; 2. There are internal procedures manuals reflecting up-to-date operational practices; • Procedures manuals should be approved by senior management. 23 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 8.1. The publication of a borrowing calendar and issuance results: 1. The borrowing calendar for wholesale securities covers at least three months. A 8.2. Domestic market operations and clarity in rules and procedures: The minimum requirement for 1. An ongoing dialogue with market participants (regular conference calls or other high score B is met. In addition: frequency contact); • There are at least two formal meetings per year with major market participants (inviting all PDs, if applicable). DPI 8.1. The minimum requirement for score C is not met. D DPI 8.2. The minimum requirement for score C is not met. 24 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 8) Guidance notes when determining compliance with the requirements The indicative volumes can be expressed in various ways, e.g., a specific volume, a target range, 8.1 B a maximum, or a minimum. In the context of DeMPA, domestic borrowing refers to debt obligations issued/contracted in the 8.1 C local capital market. External debt refers to obligations denominated in foreign currency subjected to international capital market legislation. The wholesale debt market is characterized by large volumes to be traded either on primary or secondary markets. Institutional investors are the main players in that market. In contrast, the 8.1 C retail debt market requires small volumes to be traded allowing individual house investors to allocate their savings on public debt instruments. The calendar should be consistent with the ABP (Annual Borrowing Plan). Deviation from the calendar could be a result of extreme market turmoil or sudden operational challenges, such 8.1 C that there is insufficient demand or that clearing yields would be significantly out of line with the secondary market. A rule of thumb would be that market participants generally support the changes, and the government is not forced to incur excessive costs. Though the DeMPA doesn’t take account of when the results are published, advanced practice is to publish the key parameters within 1h of the auctions. The results must include (for each 8.1 C security): the volume of bids received; volume of securities issued; cut off rate, weighted average yield for issuance (or single price as appropriate); and range of successful yields. This is only a minimum requirement. Although not a requirement for the DeMPA, advanced countries should publish the breakdown 8.2 B between the total number of bids and accepted bids. 8.2 B Virtual meetings are acceptable. Market-based instruments: The main instruments are bonds, notes and bills. Direct bank credits may also be market-based, if conducted through open procurement or other mechanisms ensuring a market interest rate. Retail debt should be at market-based rates. 8.2 C A key test is that the authorities do not control interest rates on government debt instruments, i.e., they are formed freely in the market. Excessive use of discretion to scale back auctions, or evidence that the clearing price/yield stays the same in auctions over time, may indicate that the process is not genuinely market-driven. 25 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance notes when determining compliance with the requirements Market based mechanisms. The main mechanisms are auctions and syndication (tap and private placement are acceptable). However, the WB/IMF Guidance Note on the topic suggests that, 8.2 C at a minimum, 50% of the placements should be undertaken through auctions and syndication in aggregate. Terms and conditions of instruments need to include: description and form of the instrument, 8.2 C calculation of settlement prices from yields, calculation of interest payments and accrued interest, and day count conventions. The issuance guide needs to include all steps in the issuance process, e.g., for auctions this would include eligibility to bid, announcement of the auction, bidding time period (opening time 8.2 C and closing time), processing of bids, approval of auction cut-off interest rate, announcement to successful bidders and the market, and settlement of the auction. 26 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-9 External Borrowing Table 9. Scoring: External Borrowing (DPI 9) Score Requirements by DPI 9.1. Organizational arrangements and processes for external borrowing; financial analysis of terms and conditions. 1. Organizational arrangements and processes: a. The staff responsible for external borrowing is able to articulate (and follow) the steps required to borrow from each creditor and market-based funding source; 2. Financial analysis: C a. Assessments of the most beneficial or cost-effective terms and conditions for external borrowing that potential creditors and markets can provide must be conducted annually. b. Prior to undertaking each external borrowing, its consistency with the ABP or the DMS (if there is one) is checked. 9.2. Involvement of legal advisers: 1. Legal advisers must approve all clauses of the legal agreements before concluding the negotiation process. 9.1. Organizational arrangements and processes for external borrowing; financial analysis of terms and conditions 1. Organizational arrangements and processes: a. There are updated documented procedures for all external borrowings, including from international capital markets. B • The procedures should be approved by senior management and should detail the The minimum steps taken in all processes. requirement for score C is met. In addition: 2. Financial analysis: a. Assessment of the most beneficial or cost-effective terms and conditions for external borrowing are updated as changes in the borrowing conditions or requirements become apparent during the year. 9.2. Involvement of legal advisers: 1. Legal advisers are consulted during the negotiating process. 27 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 9.1. Organizational arrangements and processes for external borrowing; financial analysis of terms and conditions 1. Financial analysis: A a. DM staff monitors market conditions on a continuous basis; and The minimum b. Assessments of the most beneficial or cost-effective terms and conditions for external requirement for score B is met. borrowing, that potential creditors and markets can provide are undertaken before the In addition: start of each loan negotiation. 9.2. Involvement of legal advisers: 1. Legal advisers are consulted from the first stage of the negotiating process to the conclusion of the legal agreements related to the borrowing. 9.1. The minimum requirement for score C is not met. D 9.2. The minimum requirement for score C is not met. 28 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 9) Guidance notes when determining compliance with the requirements For borrowing from official sources, the steps should include: a) liaise with ministries and project entities as appropriate; (b) assess the most beneficial terms and conditions; (c) negotiate the 9.1 C terms and conditions of the loan with the creditor (including currency, maturity, interest rate, and fees); (d) finalize all loan documentation; For issuance in the international capital markets, the steps should include: (a) establish a team responsible for the issuance; (b) select advisors and banks to execute the transaction; 9.1 C (c) prepare bond documentation; (d) communicate with investors; (e) execute the transaction (price guidance, book-building, and allocation, in consultation with banks); and (f) manage after- issuance processes (settlement, market monitoring). Financial analysis: includes comparison of different options regarding the level of interest rates, currency, fees, other charges, disbursement profile and impact on the maturity profile. The loan/ bond should be consistent with the ABP. There needs to be an assessment of the most cost- efficient borrowing conditions from creditors and markets in respect to the currency, tenor and 9.1 C interest rates that are offered. Guidance: This goes beyond just checking concessionality levels. The assessment should contain analysis of the all-in cost from each source, including all fees and other costs. Apply expert judgment on quality. The frequency will depend on the level of market activity and market-based operations in any 9.1 A particular setting. Advanced practitioners monitor market conditions daily. Guidance: seek evidence of legal advisors’ approval, e.g., internal memoranda or email. Legal 9.2 C advisors can be part of the DMO, they can be MoF lawyers, or come from the Attorney General Office’s, they may also be legal experts that are hired for specific transactions. Legal advisors typically verify if the agreements: i) have a clear definition of indebtedness, default 9.2 C events and related clauses; ii) describe the scope of the waiver of sovereign immunity; and how much these vary across debt contracts. 29 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-10 Loan Guarantees, On-Lending, and Derivatives Table 10. Scoring: Loan Guarantees, On-Lending, Derivatives (DPI 10) Score Requirements by DPI 10.1. Issuance of Loan Guarantees: 1. There is clarity on the decision-making process; a. Staff can articulate the process and follow the existing policy to issue guarantees. This includes verifying the beneficiary’s request to issue a guarantee (e.g., purpose/eligibility), the supply of relevant information for the DM entity analysis, and the final decision to issue a guarantee; • To obtain evidence, assessors need to judge whether the process is clear and they need to obtain guidance on the required steps. 10.2. On-Lending Operations: 1. There is clarity on the decision-making process: a. Staff can articulate the process and follow the existing policy to undertake on-lending. C This includes verifying the beneficiary’s request for on-lent credit, the supply of relevant information for the DMO analysis, and the final decision to approve the operation; • Assessors need to judge whether the process is clear and obtain guidance on the required steps. 10.3. The use of Derivatives: The documentation of derivative operations must include: 1. Derivatives’ purpose, following official guidelines; 2. Clarity on the decision-making process; This process outlines the steps to be followed by the staff. 3. Legal advice is provided from the first stage of the negotiating process to conclusion of the legal agreements with each counterparty. 10.1. Issuance of Loan Guarantees: 1. Staff must undertake a credit risk assessment on the beneficiary before the guarantee is issued; B The minimum 2. There are internal procedures manuals approved by senior management reflecting up-to- requirement for score C is met. date operational practices. In addition: 10.2. On-Lending Operations: 1. The staff must undertake a credit risk assessment on the beneficiary before the on-lending is performed;1 1. It is common for the principal guarantee entity to be given the responsibility for assessing the credit risk and keeping records of all outstanding on-lending. This is normally done in the debt recording and management system (see DPI 12). 30 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 2. There are procedures manuals reflecting up-to-date operational practices; • The procedures should be approved by senior management. 10.3. The use of Derivatives: 1. There need to be operational procedures that define rules requiring all risks connected with derivatives be monitored by a dedicated unit responsible for risk monitoring and compliance. 10.1. Issuance of Loan Guarantees: 1. Charge a fee or request collateral from the beneficiary, allocate budget appropriation or provide a contingency fund to cover credit risk on the beneficiary before the guarantee is issued; 2. Evaluate and monitor the credit risk during the life of a guarantee. 10.2. On-Lending Operations: A The requirements 1. Set the interest rate (or spread) for the loan, request collateral from the beneficiary, allocate for score B are met. In addition: budget appropriation, or provide a contingency fund to cover credit risk before the on-lending is undertaken; 2. Evaluate and monitor the credit risk during the life of an on-lent credit. 10.3. The use of Derivatives: 1. The DMO quantifies and manages counterparty credit risk throughout the life of the transaction; 2. The DMO publishes derivative purposes, exposures and counterparties. 10.1. The minimum requirement for score C is not met. D 10.2. The minimum requirement for score C is not met. 10.3. The minimum requirement for score C is not met. 31 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 10) Guidance notes when determining compliance with the requirements Fees, collaterals, budget appropriation, contingency funds or any other recovery schemes are actions intended to protect the government balance sheet from default from the beneficiaries of 10.1 A guarantees and on-lent credit. As such, they should not be symbolic, they must also be large and enough to cover any losses (partially or fully) that the government may incur. The allocation 10.2 A of funds can be cash-based or set in notional terms, as long as they can be effectively used when needed. Guarantees framework: A set of rules and procedures (primary or secondary legislation) comprising: (i) sound governance arrangements, including the legal framework and institutional setup, where guarantees are defined; the purpose of the guarantees is described; and the entities or sectors to benefit from the guarantees are specified; (ii) institutional and technical 10.1 C setup to evaluate the contingent liabilities from guarantees; (iii) tools to manage and monitor the CLs, such as setting limits on guarantees; deciding on new guarantees by means of guidelines; charging guarantees fees; properly recording and reporting guarantees; and arrangements to pay when necessary. Such analysis seeks answers to the following: Does the credit risk assessment show an 10.1 B understanding of the business and the drivers of credit risk? Does the assessment provide a and qualitative or quantitative analysis of credit risk? Does the analysis provide decision-makers with 10.2 B clear advice on situations when credit losses could occur? The procedures manuals should provide details of how the credit risk should be assessed, together with measures to recover the loss and minimize its budget effects. 10.1 B and The procedures also reinforce: (i) the purpose of borrowing; (ii) the decision making-process; 10.2 B (iii) rules for database entry (and accounting); (iv) governance, as it must be approved by the management. For the DeMPA, the guarantees issued are attached to a loan. A guarantee normally has a contract between the creditor and the beneficiary (debtor); a contract between the creditor and 10.1 C the government (guarantor); and if applicable, a contract between the debtor and the guarantor binding on recovery schemes. The process issuing guarantees must observe the existing written regulation that guides the 10.1 C operations. The objective is to ensure that the specific transaction folds into the existing guidance and avoids guarantees being issued on an ad hoc basis . Assessors need to judge how clear the process is, they need to get some guidance on steps that 10.1 C are required. 32 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance notes when determining compliance with the requirements Embedded options in certain loan agreements are not considered derivative transactions in the DeMPA tool. These embedded options may include options to change a floating interest rate to 10.3 C a fixed interest rate, to cap a floating interest rate, to change the original borrowing currency to another currency, or to prepay a loan before the final maturity date. 33 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-11 Cash Flow Forecasting and Cash Balance Management Table 11. Scoring: Cash Flow Forecasting and Cash Balance Management (DPI 11) Score Requirements by DPI 11.1. Cash Balance Forecast: 1. A monthly cash plan of the approved budget is available for the DMO for the budget year; this covers expenditure, revenue and financing; it is updated during the year in line with any budget revision, or more frequently if necessary. 2. A rolling forecast of cash flows is available for each month, extending at least three months ahead. In addition, the forecast must be shared with debt managers: a. Forecasts must be shared (directly or via an institutional mechanism such as a cash coordinating committee). The information should be taken into account when developing the borrowing plan for the period ahead. 3. There are processes in place to measure and improve forecast performance, which could be evidenced by the following: • Forecasts are compared against outturns; C • Deviations are used when developing policy (in responding to forecasts and in improving the forecasting process); • Forecast errors should be reducing over time; • Forecasts of future cash flows are obtained from others in the Ministry of Finance, and from line ministries, revenue authorities and other agencies, covering at least 80 percent of expenditures and revenues. 11.2. Cash Balance Management: 1. The government maintains positive balances in its bank accounts (in the banking sector or in the TSA), as necessary using short-term instruments (such as T-Bills) to cover temporary cash shortages and avoid payment delays. A CB overdraft cannot be considered part of the positive balance; 2. The government earns a market rate on its cash balances. In the case of deposits at the central bank the market-rate may be the official policy rate, overnight cash rate or its equivalent. 11.1. Cash Balances Forecast: 1. Cash flow forecasts for the coming month are broken down on a weekly basis for at least one B month ahead. Forecasts are updated monthly. The minimum requirement for score C is met. In addition: 11.2. Cash Balance Management: 1. There is a defined liquidity buffer or target, and an appropriate investment policy in place, evidenced by: 34 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI • well-defined cash targets, ranges, and buffers; • authorized investment instruments with limits on each; • internal procedures for identifying and approving investment, management of collateral and for mitigating operational risk; • credit limits for each institution (or instrument), based on credit ratings or other credit assessment, taking account of available collateral. 2. Actual cash and liquidity balances have met the specified target on at least 75% of days in the previous year • This is evidenced by comparing end-of-day daily cash balances for that period against the liquidity buffer target from the previous year. 11.1. Cash Balances Forecast: 1. Cash flow forecasts are broken down by week for at least three months ahead and by day for one month ahead; forecasts for the next three months need to be updated at least weekly. A 11.2. Cash Balance Management: The requirements for score B are met. In addition: 1. The actual cash and liquidity balances have met the specified targets on at least 90% of days in the previous year. This is evidenced by: • comparing end-of-day daily cash balances for that period against the liquidity buffer target from the previous year. 11.1. The minimum requirement for score C is not met. D 11.2. The minimum requirement for score C is not met. 35 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 11) Guidance notes when determining compliance with the requirements A Cash Flow Forecast may be defined as an estimate of future government cash inflows and outflows, the objective of which is to ensure that a sufficient cash balance is available for the 11.1. C budget to function, it will also support other cash management objectives. The government has control over the cash balance (usually in domestic currency in the TSA). The forecasts should be distinct from cash plans which are based on a time profile of the approved budget. Budget Profile: the agreed profile across the year, usually monthly, of the approved annual budget. The profile may be the basis for the release of spending authority; but in any event will be used to monitor and control execution of the budget. Cash Plan: the planned pattern (usually monthly) of all government cash flows across the year. It 11.1 C includes flows of receipts and expenditure (i.e., the budget profile noted above) and of financing. Cash Forecast: Designed to identify what will happen, not what should happen. This needs to be an unbiased and unconstrained best estimate. The two series (cash plan and forecast) will often diverge as the budget year unfolds. Note the evidence under 11.1.c3 are not strict requirements. They should be seen as guidance 11.1 C for assessment teams. There is a presumption against going into overdraft or borrowing from the central bank. However, 11.2 C any borrowing within a well-defined policy consistent with DPI.7.3, does not disqualify from the C mark. To determine if the interest rate on cash deposits at the central bank is “market-based” it could be 11.2 C compared to the policy or overnight interbank rates. Other remuneration schemes involving the CB, i.e., CB notes, T-bills or repo rates may also be used. Investment policy: formal rules for using instruments and counterparts when investing cash, including the use of risk mitigation tools (e.g., use of collateral, limited investment tenor). Appropriate investment policies may include: (a) the investment instruments, typically seeking 11.2 B market-based short-term, liquid and low risk alternatives; with collateral where relevant; (b) limits on each type of instrument; (c) specified internal procedures; and (c) credit limits for each institution that should reflect the credit risk of counterparts. 36 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-12 Debt Recording, Monitoring, and Payments Table 12. Scoring: Debt Recording, Payments (DPI 12) Score Requirements by DPI 12.1. Debt Recording: 1. Initial debt recording and final confirmation need to be clearly separated (two steps, dual control). This is evidenced by: • One staff member undertakes the initial recording and another staff member confirms this after checking the transaction parameters (volume, tenor, interest rates, currency, disbursement schedule) against information provided by the creditor/counterparty at settlement. • The segregation of duties is mirrored in the authorizations in the system, i.e., no staff member is allowed to enter/modify or confirm transactions in the system without proper authorization. • For securities, the staff member may use information from auction results (or another issuance modality) to record in the DMIS; • For Loans/Guarantees/on-lending, the staff member may use information from contracts and disbursement. • Staff members who participate in debt negotiations should not undertake the final recording; C 2. Debt transactions are recorded in the DMIS within three months of issuance/ signing/disbursement. • There is no evidence of transactions if they are not recorded in the debt system. 3. Securities are recorded within a week after issuance. • In this case, securities can be recorded in the CSD, DMIS or other. • The completeness of records in the DMIS is assessed in DPI 14.1. 12.2. Payments: 1. Payment instructions (initiation and processing) are subject to a minimum two-person authorization. This could be evidenced by: • The staff member initiating the payments should not have rights to enter/modify or confirm final data in the DMIS; 2. Debt payments are prepared based on the DMIS records and are checked against the creditor’s notifications (invoices) before execution. This is evidenced by: 37 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI • The staff member extracts the debt service from the debt system to prepare payment orders. 3. Payments are made on the due date and are recorded within one month. This is evidenced by: • Absence of delays/penalties or technical default for not paying the full amount on time. 12.1. Debt Recording: 1. There is an organizational separation between the initial debt recording and final confirmation (two steps, dual control). There is evidence that: • Different units with separate reporting lines in the organizational structure record transactions; B 2. Debt transactions are recorded in the Debt Management Information System (DMIS) within The minimum two months of issuance/signing/disbursement; requirement for score C is met. 3. There are up-to-date procedures manuals that reflect updated operational practices. In addition: a. Procedures manuals are approved by senior management and are followed. 12.2. Payments: The DMO needs to : 1. Have organizational separation between the payment initiation and final processing; 2. Perform based on up-to-date procedures manuals reflecting current operational practices. 12.1. Debt Recording: 1. All debt transactions are recorded in the DMIS within one month of issuance/ A signing/disbursement. The requirements for score B are met. In addition: 12.2. Payments: 1. The debt payments are prepared and issued electronically, and use straight-through processing. 12.1. The minimum requirement for score C is not met. D 12.2. The minimum requirement for score C is not met. 38 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 12) Guidance notes when determining compliance with the requirements Straight-through processing is the ability to send payment instructions directly from a management information system to a secure financial messaging system (for example, SWIFT), the central bank or commercial banks. With these electronic links in place, there is no need to reenter 12.2 A data into payment systems, reducing operational risk and increasing efficiency. Control over the authorization of payments is maintained through access rights to the system, enabling the minimum two-person verification. 12.1 B User and technical manuals that accompany a debt recording and management system are not and enough to meet the minimum requirements. In such cases, the indicators should be read as if the 12.2 B procedures manuals are not in place. Organizational separation means different units with separate reporting lines in the organizational structure to record transactions. For payments it means that the staff member preparing the 12.2 C payment order is different from the staff member clearing the payment, both report to distinct and hierarchical lines. A variety of set-ups can fulfill this requirement, for example: a back office 12.2 B sub-unit prepares the payment and a different sub-unit that is responsible for the settlement (or overall head of department) clears it before releasing for payment execution. 12.1 C and The requirement for restricted access to the DMIS is explicit in DPI 13.1.c1. 12.2 C 12.1 C Final recording confirms registration in the system. Countries with a simple portfolio can record in an appropriate software application. Simple 12.1 C portfolios are defined as less than or equal to 30 loans and plain vanilla securities. Payment Initiation means preparing the payment order, normally extracting payment data from the DMIS, comparing with creditor invoices and inputting into the FMIS with respective financial, 12.2 C budgetary and accountability records. Note: When applicable, assessors should capture how invoices’ billed values are different from DMIS estimates for payment. Payment Processing means the execution of the payment order using dedicated resources and 12.2 C with budgetary authorization in the relevant currency for a specific beneficiary. This is typically undertaken in the FMIS and can be tracked for auditing purposes. Not applicable for countries with a simple portfolio; they can prepare the debt payment based on 12.2 C the information registered in any software application. Simple portfolios are defined as less than or equal to 30 loans and plain vanilla securities. 39 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-13 Data Security and Business Continuity Table 13. Scoring: Data Access, Backups, and IT Infrastructure (DPI 13) Score Requirements by DPI 13.1. Data Access, Backups, and IT Infrastructure: 1. There is restricted access to the debt recording system; 2. There are monthly secure backups; 3. Signed copies of contracts (loans, guarantees, on-lent loans, etc.) are electronically stored in a secure location; 4. The IT infrastructure and technical standards support debt recording, payment administration and data security. 5. Corrections from system providers are performed timely C • Within a year from request. 13.2. Business Continuity (BC) and Disaster Recovery (DR): The DMO must have: 1. Written BC and DR plans; • BC and DR plans can be combined in a single document 2. The plans must have been tested within the past 2 years. 13.1. Data Access, Backups, and IT Infrastructure: 1. There are weekly secure backups; 2. The IT infrastructure allows the DMO to operate remotely; B The minimum • As a minimum, borrowing transactions, recording and payment should be able to be requirement for score C is met. operated remotely. In addition: 13.2. Business Continuity (BC) and Disaster Recovery (DR): 1. There is an operational recovery mechanism; 2. The mechanism is tested annually. 13.1. Data Access, Backups, and IT Infrastructure: 1. The DMIS produces audit trails; 2. There are daily secured backups; A 3. The debt recording system (DMIS) and the Financial Management Information System The requirements for score B are met. (FMIS) are integrated. In addition: 13.2. Business Continuity (BC) and Disaster Recovery (DR): 1. There are documented guidelines for operational risk management. 40 Debt Management Performance Assessment Methodology DPI Tables and Guidance Score Requirements by DPI 13.1. The minimum requirement for score C is not met. D 13.2. The minimum requirement for score C is not met. 41 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 13) Guidance notes when determining compliance with the requirements Interface means automated, but not integrated with FMIS, typically set by web-based solution (API - Application Programming Interface, cloud computing) or a secure network connection between designated servers, point-to-point integration or direct connection. 13.1 A Integration modules are set on a single logical database to ensure data integrity and security across all operations. Modules function together under a single solution framework. Examples of information that is typically exchanged between the DMIS and the FMIS are: (i) estimates of loan disbursements and bonds proceeds; (ii) cash flow forecasting; (iii) budget 13.1 A releases for debt payments; (iv) debt service forecast; (v) transaction recording (financial/ budgetary/accounting); (vi) reconciliation of debt records; (vii) debt reports consistent with financial records. Operational Risk Management. An operational risk assessment would determine the following: what constitutes a disaster; the risks to which the organization is most susceptible; systems and activities that are critical, and the potential impact (financial and reputational) of that. It covers 13.2 A incidents such as natural disasters, fire, power failure, terrorist attacks, deliberate disruptions, theft, fraud, system and/or equipment failures, human error, computer viruses, legal issues, worker strikes, and loss of key personnel. Actions to mitigate these risks are included in the operational risk management plan. “Operate remotely” is to undertake core debt operations from a location other than the primary 13.1 B office (e.g., home-based operating). Core DM activities are typically associated with borrowing transactions, recording, monitoring and payments. Disaster Recovery mechanisms can be an alternate device, a virtual setting, or a site that can be 13.2 B used in the event of a failure of the primary data center. Without appropriate backup and recovery mechanisms, a “disaster” can mean data loss and have significant impacts on debt management. 13.1 C “Secure” means stored in a separate location and protected against destruction. Cloud computing (“the cloud”) is the delivery of on-demand computing resources over the internet on a pay-for-use basis. This includes everything from applications to data centers. 13.1 C A container is a standard unit of software that packages up the code and all of its dependencies so that applications function reliably across computing environments. 42 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance notes when determining compliance with the requirements Infrastructure includes: (i) hardware (servers, computers, data centers, switches, hubs, routers, etc); (ii) Software (DMIS, productivity applications, etc.); (iii) network resources (network 13.1 C enablement, internet connectivity, firewall, security); (iv) services required for existence, operation, and management of the IT environment. This also includes human users: (a) administrators, developers, (b) designers, (c) end-users with access to any IT appliance or service. Business continuity planning allows an organization to be prepared for anything that could 13.2 C jeopardize its performance, its ability to meet business objectives, or its long-term health. Risks can be local e.g., building fires, regional such as earthquakes, or national like pandemics. Disaster Recovery is the process of regaining access to data, hardware, and software. It is also the ability to resume critical business operations after a natural or human-induced disaster 13.2 C with the minimum number of staff. A disaster recovery plan (DRP) should also include plans for coping with the unexpected loss of key personnel. A DRP is part of the business continuity planning process. 43 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-14 Debt Related Records Table 14. Scoring: Debt Records (DPI 14) Score Requirements by DPI 14.1. Completeness and Timeliness: 1. There are complete central government debt records in the debt recording system with up to a three-month lag; • This includes all securities, even if they are also recorded in the CSD. 2. Reporting and cost-risk analysis is based on data in the debt recording system. C 14.2. Secure Registry Systems and Debt Holders: 1. Securities are dematerialized and kept in a Central Securities Depository (CSD) with updated information on debt holders; • Evidence that securities have an ISIN code or are digitally managed. 2. Registry system and records are subject to internal audit every second year. 14.1. Completeness and Timeliness: B 1. A maximum recording lag of two months. The minimum requirement for score C is met. 14.2. Secure Registry Systems and Debt Holders: In addition: 1. Yearly audits. 14.1. Completeness and Timeliness: 1. A maximum recording lag of one month; A 14.2. Secure Registry Systems and Debt Holders: The requirements for score B are met. In addition: 1. Settlement to be performed on a Delivery-Vs-Payment (DVP) basis. • DVP is a settlement method widely used in the industry to ensure that transfer of securities only happens after payment has been made. 14.1. The minimum requirement for score C is not met. D 14.2. The minimum requirement for score C is not met. 44 Debt Management Performance Assessment Methodology DPI Tables and Guidance Guidance and Definitions (DPI 14) Guidance notes when determining compliance with the requirements Complete Debt Records: Domestic, External, Guarantees, debt-related transactions, including 14.1 C past debt relief and debt restructuring. Arrears, from unpaid fiscal spending, will not typically have a corresponding debt instrument 14.1 C recorded in a DMIS, although they represent a liability for the government. Sound reporting (DPI 4) and cash management (DPI 11) need to capture and to measure such obligations. As in DPI 12.1, countries with a simple portfolio can use any software application for recording. 14.1 C Simple portfolios are defined as less than or equal to 30 loans and plain vanilla securities. Delivery versus payment (DVP) is a widely-used settlement method to ensure that securities are 14.2 A only transferred after payment has been made. DVP stipulates that the buyer’s cash payment for securities must be made prior to or at the same time as the delivery of the security. CSD is a specialized financial organization holding securities such as bonds and shares in 14.2 C certificated or uncertificated (dematerialized) form so that ownership can be easily transferred via book entry rather than the transfer of physical certificates. ISIN: International Securities Identification Number 14.2 C CUSIP: Committee on Uniform Security Identification Procedures. Both are digit codes for the purposes of facilitating clearing and settlement of trades. Book-entry: A system of tracking ownership of securities where investors are not given a 14.2 C physical certificate. 45 Debt Management Performance Assessment Methodology DPI Tables and Guidance DPI-15 Debt Management Information Systems (DMIS) Table 15. Scoring: Debt Management Information Systems (DPI 15) Score Requirements by DPI 15.1. Use of the DMIS: 1. The DMIS store all debt related transactions (see DPI 14.1);2 2. Reporting and Cost-Risk Analysis is based on data from the DMIS (see DPI 14.1)3; C 3. Debt payments are prepared based on DMIS records (see DPI 12.2); 4. Corrections from system providers are performed timely (within a year from request, see DPI 13.1)4 B The minimum 15.1. Use of the DMIS: requirement for score C is met. 1. The IT infrastructure allows the DMO to operate remotely (see DPI 13.1) In addition: A 15.1. Use of the DMIS: The requirements for score B are met. 1. The DMIS produces audit trails (see DPI 13.1); In addition: 2. The DMIS is integrated with other PFM systems (e.g., FMIS) (see DPI 13.1); D 15.1. The minimum requirement for score C is not met. 2. The assessment team should note if securities are recorded in the DMIS in a timely manner (see DPI 12.1 and 14.1). 3. The DMIS computes cash flows to undertake DM strategy exercises. 4. Sub-DPI 13.1.c5 requires system providers to resolve open tickets within a reasonable period. Assessment teams may look for the number of open tickets pending resolution. 46