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PUBLIC AUDIT REPORT
PUBLIC DEBT MANAGEMENT
July 30, 2007 Vilnius
Annual meeting of INTOSAI PDWG
Nadi, Republic of Fiji Island, July 24-25, 2008
Erika Latyšovič, Chief Public Auditor
National Audit Office of Lithuania
[email protected]
Auditee – Ministry of Finance of the Republic of Lithuania
Audit objectives – To assess:
Public debt management on behalf of Government
Design and objectives implementation of the programme
“Debt Management on Behalf of Government” implemented
by the Ministry of Finance
Assessment Criteria:
•
Following the legal acts regulating government‘s debt
management
•
Following the Guidelines for Public Debt Management
developed by the International Monetary Fund and World
Bank
•
Efficiency of planned government‘s debt management
measures: comparison of measures applied in Lithuania with
good foreign practice
 Public debt - the consolidated amount of assumed but still
outstanding liabilities of entities attributable to the general
government sector, that have the borrowing right, to creditors
to repay funds borrowed by issuing Government securities,
signing loan, leasing agreements and other binding debt
documents
 When borrowing and managing public debt the Government
shall be represented by the Ministry of Finance
 By the end of 2006 the public debt equalled LTL 14 938,7
million (1 Euro – 3,4528 LTL fixed rate)
Borrowing objectives in Lithuania
• To finance the State Budget deficit and to balance the State
Treasury cash flows
• To finance State investments and to increase current assets of
enterprises
• To cover the expenses related to the national debt and to repay
the national debt
• For other purposes if there is a separate law of the Republic of
Lithuania
Lithuanian public debt, deficit and debt
management costs trends, 2004-2007
Year
Budget
deficit
(LTL mln)
Public
debt /
GDP
(per cent)
Public debt
Public
Debt
(LTL mln) debt trend management
costs
(LTL mln)
(LTL mln)
2004
858,5
19,4
12 162,2
+ 116,4
641,9
2005
668,4
18,6
13 276,1
+1 113,9
566,2
2006
1 193,2
18,2
14 938,7
+ 1 662,5
569,3
2007
337,1
17,3
16 698,0
+1 759,3
710,8
Government Sector Debt (per cent of GDP) 2005–2009 forecast
(The 2006 Lithuanian Convengerce Programme)
Year
2005
2006
2007
2008
2009
Indicator
18.7
18,4
19,2
19,0
17,7
Public Finance Sustainability Risk (European Commission)
Risk level
Low
Medium
High
Country
Lithuania, Denmark, Estonia, Latvia, Netherlands,
Finland, Sweden, Poland
Belgium, Germany, Spain, France, Ireland, Italy.
Luxembourg, Malta, Slovakia. United Kingdom
Greece, Cyprus, Hungary, Slovenia, Portugal
Trends of government sector debt to
GDP ratio in Baltic's and EU member
states in 2003-2007, per cent
Country
2003
2004
2005
2006
2007
Estonia
5,3
4,9
4,8
4,1
3,4
Latvia
14,4
14,3
11,9
10,0
9,7
Lithuania
21,2
19,4
18,6
18,2
17,3
ES member
states (average)
63,3
63,8
63,4
61,7
58,7
Structure of public debt
By the end of 2006 (per cent):
•
Domestic debt – 31,6 foreign – 68,4
•
Long–term liabilities – 97,7 short–term – 2,3
•
Loans – 9,1 securities – 90,9
•
Debt in Euro – 81 in Litas – 17,8 other – 1,2
Liabilities of the central government
sector LTL million in 2007–2023
5000
4500
326.6
4000
438.0
538.4
3500
3000
661.7
3866.7
3610.7
691.5
2000
3928.1
2500
287.4
0
2007 m.
2008 m.
2009 m.
2010 m.
24.0
558.4
569.7
500
368.7
1000
1637.8
1703.2
1500
539.5
2011 m.
2012 m.
2013 m.
2014-2023
m.
Debt (GS issue)
Interests
AUDIT FINDINGS AND
CONCLUTIONS
Public debt strategy (1)
1. The objectives and indicators of the Government Medium
Term Borrowing Policy Guidelines are not concrete and
specific
2. Do not determined the use of public funds in case of nondeficit or surplus budget
Public debt strategy (2)
3. Do not assess optimal level of debt, which would not influence
the sustainability of government sector finance
Examples:
Finland – by 2010 the debt shall be reduced by 35 per cent of
GDP
Canada – by 2012–2013 the debt shall be reduced by 25 per
cent of GDP
Ukraine – in 2006 the Government set forth a limit that public
debt shall not exceed 20 per cent of GDP
Recommendations to the Government
•
To review periodically the Medium-Term Public Debt
Management Strategy by revising debt management
objectives and indicators
•
To consider possibility to make a legal provision of using
surplus revenues received after the government sector will
be reached a zero balance for reducing of public debt
Public debt risk management (1)
The Ministry of Finance in general ensures the debt risk
management and when borrowing follows priorities and
limits set forth by the Government
Public debt risk management (2)
Borrowing limits set forth by
the Government ,
(2005-2008, per cent)
Limits
The dynamics of the ratio of short-term
liabilities and all debt liabilities on
behalf oh government
Actual
2005
2006
30
18,7
6,36
The dynamics of interest expenditure
for debt liabilities on behalf of
government and annual amount of tax
revenue planned to be collected to the
State Budget ratio
25
4,9
2,39
Trends of ratio of debt liabilities on
behalf of government under floating
interest rate to all debt liabilities on
behalf of government
10
6,1
1,88
Public debt risk management (3)
Has to be improved:
• The process of identifying of public debt risks tolerable level
and sufficient periodic disclosure
• Market risk management
• Assessment and disclosure of the potential influence of
contingent liabilities and fiscal threats on the public debt
Recommendations to the Ministry of
Finance
• To urge the application of the debt stochastic simulation model
based on cost at risk method
• To set a procedure of stress tests and to apply them on a
regular basis
• To assess contingent state debt liabilities and fiscal threats and
properly disclose information on them
Borrowing need
Borrowing need 2006 - 5,4 LTL bln:
 The biggest part (98,5%) – budget deficit (32,3 %) and debt
repayments (66,2%)
 For investments only 80,9 LTL mln. or 1,5 %
Should be improved:
 Rules of Assessing the Government Borrowing Need
 Disclosure of information in the annual Government
Borrowing Programme
Management of state monetary resources
 There is no approved procedure regulating forecasting,
management, and accountability of state monetary resources
 Public debt and monetary resources management integrated
TT system does not created
 The Ministry of Finance insufficient use the right given by the
Government to use (refundable) temporarily free funds from
state monetary funds
 Temporarily free state monetary resources are not invested for
a relatively long time
Recommendations to the Ministry of
Finance
 To set forth a procedure regulating state monetary funds
management, forecasting, and accountability
 When forecasting need of borrowed funds to assess all
possibilities provided by the Government for use of
temporarily free money of state monetary funds
 To speed the investment of temporarily free state monetary
resources
 Further improve the Public Debt and Monetary Resources
Management IT System
The implementation of audit
recommendations
Until July 2008 the Ministry of Finance:
1.
Prepared the draft of new Public debt Medium Term
Strategy
2.
Started to use Public Debt and monetary resources
Management IT system
3.
Improved management of borrowed funds
4.
Specified Rules of Assessing the Government Borrowing
Need and indorsed Procedures regulating state monetary
resources management