Status report on Public Debt Management Office to Cabinet in Feb
It’s challenging when a country has a large, increasing, and possibly unsustainable debt path that requires a major primary fiscal adjustment to restore debt sustainability.
In this context, a dedicated agency to manage the country’s public debt in line with last year’s budget proposals is in the works.
Treasury sources told the Business Times that a status update on the work-in-progress of this agency will be presented to the Cabinet early next month.
They said that despite Sri Lanka’s debt being huge, there’s no ‘proper law’Â to raise, manage and record debt. Now the country uses the foreign debt law of the 1960s, but Treasury officials say that this is not sufficient. “In the current mounting debt context, this law isn’t enough,” a Treasury official told the Business Times. He said that the government’s debt portfolio is the largest financial portfolio in the country with complex and risky financial structures, and can generate substantial risk to the government’s balance sheet and to the country’s financial stability.
He said that the status report will highlight the fact that the Treasury will need foreign law experts to draft appropriate legislation.
While a name isn’t finalised for the new agency, it will be called Public Debt Management Office (PDMO) for now, he said. PDMO will act as the Investment Banker or Merchant Banker to the Government, manage government securities, manage and advise the government on its contingent liabilities and undertake cash management for the government and advise on its cash management etc.
PDMO will be set up, he said, with the objective of minimising the cost of raising and servicing public debt over the long-term within an acceptable level of risk at all times, guide all of its key functions, which include managing the public debt, cash and contingent liabilities.
Analysts say that wise government debt management, along with firm policies for managing contingent liabilities, can make countries less prone to contagion and financial risk. Irrespective of whether financial shocks start off within the domestic banking sector or from global financial contagion, far-sighted government debt management policies, with reliable macroeconomic and regulatory policies, are critical, they say.