The year in 2014 – a debt manager’s perspective

2014 was a challenging year for public debt managers as they continued to operate in the aftermath of the 2007-2009 financial crisis from which many countries are still trying to fully recover. Sluggish growth in developed countries continued to have repercussions on low and middle income countries while falling commodity prices, geopolitical unrest and the Ebola epidemic compounded the problems of certain regions. According to the IMF’s World Economic Outlook (October 2014), the global economy grew only by 3.3% in 2014 and the outlook for 2015 is only marginally better – 3.8%. The net effect is likely to be a deterioration in the fiscal balance of many countries which, in turn, is bound to lead to rising debt levels globally.

2014 saw several developments in public debt management as the discipline continues to evolve. The IMF/WB issuance of a revised version of the Guidelines for Public Debt Management in April encapsulates the changes that have taken place over the last decade. The celebration of the twenty years of the Macro Economic and Financial Management Institute (MEFMI), reminded me of the work a core group of international and regional organisations have been doing over this period to develop capacity in PDM. One interesting development highlighted on pdmpractice.org is the launch of e-learning courses in debt sustainability analysis and DeMPA by the IMF and World Bank which we believe is the way forward for the delivery of short specialist courses in PDM.

Countries have also pursued their efforts to strengthen debt management at the national level. Some countries have continued to rationalize institutional arrangements through the setting up debt management entities – including India which has commissioned a new task force to look into the matter. Major preoccupations of debt managers during 2014 included the identification and quantification and reporting of contingent liabilities – including those arising from Public Private Partnerships (PPPs) and cash management within the implementation of public financial management (PFM) reforms.

If Greece was arguably the most talked about country in public debt management circles in 2013, Argentina definitely won this infamous position for 2014. The interpretation of “Pari Passu” – until recently a standard and “boiler plate” clause in commercial loan contracts – by a New York Federal judge took many a financial lawyer by surprise and seemed to pause a potential threat to the future of sovereign restructuring. The Argentinian situation is still unfolding but it has already affected the drafting of Pari Passu clauses for subsequent new bond issuance in quite a few countries. This event has, in our view, reiterated the importance for countries to have strong international as well as local legal teams working in tandem when issuing debt. In spite of the use of Collective Action Clauses (CACs), this episode also points to the absence of an international mechanism to deal with the restructuring of bonds.

Another issue which caught the headlines in 2014, and which is not unrelated to the paragraph above, is that of new bond issues by so-called “frontier economies”. While the need for funding (especially for infrastructure) is justified, some commentators have sounded alarm bells about the risks that such issues could pause.  The need for sound debt sustainability analysis – especially taking into account possible shocks – therefore remains mandatory. Meanwhile many developing countries have also tried to diversify their sources of borrowing through either the development of domestic debt markets or by targeting niche investors through instruments such as diaspora bonds. Developed and emerging countries have also followed suit, as evidenced by the UK DMO’s and Hong Kong’s first Sukuk bond issues.

As 2014 draws to a close, we extend our Greetings of the Season to all debt managers and hope that 2015 will be a successful and rewarding year.