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Public Debt Management

Audit Id 1593505814794
Title Public Debt Management
Title in original language

Menaxhimi i Borxhit Publik

Albanian

Year 2017
Subject

Government Operations (Budget and Spending)

Type

Performance

Type of performance

Performed by single SAI

Comments Borrowing is one of the most important macroeconomic techniques, seen as one of the ways to meet the needs of the government in the implementation of economic programs, debt service as an instrument to manage the cost associated with borrowing and the efficiency of using public debt in order to increase economic performance. Achieving these objectives with the lowest possible cost and an acceptable risk initially consists in building a complete legal and normative framework for effective debt management, the development of domestic and secondary markets for the realization of competitive agreements, borrowing, performing operational activities of accurate issuance, services, recordings and debt reporting. In the perspective of government policies, the importance of public debt lies in guaranteeing a sustainable and well-appreciated portfolio of external and internal risk exposure. As such, the generation of effective and medium-term programs in debt management and sustainability remain the most important objectives to be achieved by the Ministry of Finance and Economy. These programs must be comprehensive and in full coherence with the country's macroeconomic projections of development. Public debt management is the government's commitment to guaranteeing the level and extent of sustainable debt growth in line with various scenarios, achieving cost and risk objectives. Increasing debt stock relative to GDP, the level of economic growth and the cost of borrowing, naturally lead to the following questions: Does the Albanian government have the ability to pay off public debt without compromising other macroeconomic and social objectives? As well as, does the government have control on the maintaining of a stable and well-exposed portfolio to financial risks? In view of these terms, the audit team noted that public debt management and increased performance are challenges that require multifaceted government measures in structural reforms to improve fiscal sustainability, increase revenue, and dispose of spending, promoting GDP growth as well as efficient forms of improving real public debt indicators.

The following message was issued:
The Ministry of Finance and Economy's failure to assess a set of essential indicators of the sustainability and cost of public debt does not ensure its management economy and efficiency. The results of the indicators responsible for assessing the sustainability and cost of public debt, such as: External Debt / Export, External Debt / Foreign Exchange Reserve and Short-Term Primary Gap Index, show that the repayment ability of our economy against public debt is declining. These results are directly related to the cost faced by the state for the repayment of interest and principal. Failure to break down medium-term public debt management strategies into concrete action plans and alternative strategies does not enable the Ministry of Finance and Economy to diversify risks to achieve efficient public debt management.

The following was recommended:
The Ministry of Finance and Economy, should manage to keep under control its ability to pay off foreign debt, presenting in parallel with debt monitoring plans and fiscal plans, exclusively for export data as a significant weight variable for the analysis of public debt.
The Ministry of Finance and Economy should manage the creation of a favorable environment in policy making in regard to the improvement of export results.
The Ministry of Finance and Economy should include in its fiscal policies in order to minimize the cost of coverage and debt service, monitoring of the Primary Gap Index as one of the most important indicators regarding sustainability.
MFE should respect the annual limits for the increase of domestic debt stock, external debt and state guarantees for the benefit of third-party beneficiaries, defined by the annual budget law.
MFE in cooperation with the responsible structures for public debt management, should manage to maintain debt levels according to the strategic objective approved to, taking into account the adaptation of the main strategic objectives with projections of macroeconomic indicators.
MFE in cooperation with the responsible structures of public debt, to identify and specify the differences between the values published in the table of fiscal indicators, improving the quality of government debt data, in order to identify its real situation and be transparent regarding data of financial importance for the country's economy.
The responsible structures in the Ministry of Finance and Economy should be committed to take concrete steps in close cooperation with the main actors (Bank of Albania, Financial Supervisory Authority, etc.) for the development of secondary markets of government securities.
The Ministry of Finance and Economy should take measures and manage to design alternative strategies to the basic strategy in the Medium Term Debt Management Strategy (MDTS) for period 2016 - 2018. The responsible structures of the Ministry of Finance and Economy should manage for the alternative strategies that will be attached to the Basic Strategy in MDTS, to be updated at the same time with MDTS 2016 - 2018.
The General Directorate of Public Debt Management should take the necessary measures to fill all vacancies in order to increase its human resources capacity.
MFE should manage for all medium-term debt management strategies to design concrete action plans, and in coherence with the goals and objectives identified in the strategy.
The Ministry of Finance and Economy should ensure that the annual publications, analysis and public debt monitoring reports, include other fiscal indicators that clearly show the economic situation and assess fiscal policies simultaneously with the level of public debt.
The responsible structures in the MFE include in their periodic public debt monitoring reports, cash flows use analysis categorized according to Operational, Financial and Investment activities.
MFE should periodically prepare a specific analysis regarding the tracking and monitoring of money use generated by the issuance of public debt.
Country

Albania

Materials

Summary

Albanian

See summary
Contact
Performance Audit Department
kmuca@klsh.org.al
http://www.klsh.org.al/
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