Financial Planning-part-2 Policies- Tarun Das

Financial Planning Methodology and Policies – Tarun Das

Financial Planning Methodology and Policies Part-2: Policies ________________________________________________________________

Prof. Tarun Das1, Ph.D. Glocom Inc. (USA) Strategic Planning Expert ADB Capacity Building Project On Governance Reforms

________________________________________________________________

Ministry of Finance Government of Mongolia Ulaanbaatar, Mongolia. January 2008 . 1

Formerly Economic Adviser, Ministry of Finance and Planning Commission of the Government of India, and Professor (Public Policy), Institute for Integrated Learning in Management (IILM), New Delhi. For any clarifications contact [email protected]

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Financial Planning Methodology and Policies – Tarun Das

Financial Planning Methodology and Policies Prof. Tarun Das CONTENTS Part-1: Methodology 1. Introduction and Scope 1.1 Objectives of Financial Planning 1.2 Components of Financial Planning 1.2.1 Reallocation of budgetary resources 1.2.2 Budgetary Planning for the future 1.2.3 Nominal number planning versus ratio planning 1.2.4 Independence of fiscal and financial authorities 1.2.5 Financial control systems and mechanisms 1.3 Status of Fiscal Planning in Mongolia 1.3.1 The larger role of the government 1.3.2 New public sector management 2. Public Finance Management in Mongolia 2.1 Determination of policies and priorities 2.2 Allocation of public resources 2.3 Establishment of mechanisms for financial control 2.4 Uniformity of accounting standards and fiscal statistics 2.5 Internal and concurrent audit system 2.6 Ex Ante Financial Control 3. Relation Between Financial Planning and Budget Planning 3.1 Budget planning and Strategic Planning 3.2 Public Sector Management and Finance Act (PSMFA 2002) 3.3 Progress of Implementation of PSMFA during last five years 4. Methodology for Financial Planning for 2009-2011 4.1 Macro-economic framework 4.1 Methodology for Financial Planning 4.3 Financial Planning for 2009-2011 Annex: Financial Accounting Tables prescribed by IMF GFSM-2001 Selected References

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Part-2: Policies 5. Policies for Financial Planning and Risk Management 5.1 Risk Management for Natural Disaster 5.1.1 The credit system 5.1.2 Risk transfer instruments 5.1.3 Insurance and development bonds 5.2 Management of Contingent Liabilities 5.2.1 Contingent liability- definitions and measurement 5.2.2 Fiscal risk matrix for Mongolia 5.2.3 Lessons from international best practices 5.2.4 Management of contingent liabilities 5.3 Management of Public Debt 5.3.1 Public debt of Mongolia 5.3.2 Debt sustainability and fiscal deficit 5.3.3 Risk management systems for public debt (a) Independent and integrated Public Debt Office (b) Composition and functions of the Public Debt Office (c) Transparency in risk management (d) Basic principles f risk management (e) Risk management framework (f) Assessment of risk 5.4 Management of External Debt 5.4.1 Various risks of external debt 5.4.2 Risks for different modes of capital transfer 5.4.3 External debt sustainability measurement 5.4.4 Risk management policies for external debt 5.4.5 Stress tests (a) Standard stress tests (b) Indicators of debt distress episodes (c) Determinants of debt distress (d) Quality of institutions and policies (e) Indicators of debt and debt service thresholds (f) Debt distress classifications 5.4.6 International best practices for debt management Selected References

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Financial Planning Methodology and Policies Prof. Tarun Das, Strategic Planning Expert Part-2: Policies 5. Policies for Financial Planning and Risk Management 5.1 Management for Natural Disaster One of the major objectives of the ex-ante Financial Planning is to deal with contingent liabilities of the government and risk management for unforeseen events such as droughts, floods, earthquakes, land slides and other natural disaster. Risk management and emergency response need to be clearly distinguished. Risk management calls for ex-ante planning and investments to reduce vulnerability. Emergency response involves ex-post expenditures for reconstruction, rehabilitation and restoration of public infrastructure affected by natural disaster, which can be greatly reduced through ex-ante planning and investments in prevention and mitigation. While the occurrence of natural events can not be predicted precisely and prevented fully, there is a possibility to reduce the degree of vulnerability of populations through risk management. This can be achieved in two ways: (i) planning with the purpose of the identification and reduction of risk by integrating prevention and mitigation measures into national development and financial plans and programs and (ii) financial protection provided by transferring risk partly to the private sector or spreading it over time. The latter can be achieved by strengthening both life and non-life insurance institutions and allowing foreign and private investment in insurance funds. However, this requires development of appropriate rules and regulations and strengthening the independent regulatory authorities. 5.1.1 The Credit System The development of an efficient savings and credits system through the development banks, commercial banks, co-operative banks, savings banks, informal and formal non-banking financial institutions, and micro-credit institutions would contribute to the mobilization of the resources needed to finance investments in prevention, mitigation, rehabilitation and reconstruction. The system of contingent credit mechanism makes it easier to obtain financing in the event of a disaster. In the case of a contingent credit, in exchange for an annual fee to a general insurance company, the right is obtained to take out a specific loan amount post-event that has to be repaid at contractually fixed conditions. In order to tackle the adverse impact of severe dzuds in Mongolia, if any in future, a system of contingent credits or crop insurance or herds insurance can be developed.

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5.1.2 Risk Transfer Instruments Risks can be transferred by creating suitable risk transfer instruments and mechanisms currently in use in developed countries, especially insurance. Since insurance premiums are a function of prevention and mitigation measures taken by the insured party, the establishment of insurance mechanisms increases awareness of the need to invest in such measures. Financial protection against natural disasters through insurance mechanisms is attractive as it offers the opportunity of transferring part of the risk to others, while avoiding the need for borrowing to deal with an emergency. Financing through ex ante credits offers even more incentives to mitigate risk because risk transfer instruments offer opportunities to contain moral hazards or adverse selection problems. Ex-ante measures to tackle unforeseen events include prevention and mitigation, insurance, contingent credit and reserve funds. Mitigation reduces the damages, whereas risk financing measures reduce losses by transferring risk or sharing risk with others. Mitigation is directed towards decreasing engineering or physical vulnerability, whereas risk financing reduces financial vulnerability (Fig. 1).

natural hazard engineering engineering vulnerability vulnerability

exposure

damage

mitigation

financial financial vulnerability vulnerability

economic loss

ex-ante instruments

Fig. 1:Mitigation and Risk Financing

Risk transfer provides indemnification against losses in exchange for a premium payment. Risk is transferred from an individual to a (large) pool of risks through insurance/ reinsurance, reserve funds and contingent credit systems (Fig.2). Insurance and reinsurance funds bear part of the risk. In a reserve fund arrangement, liquid funds are laid aside so that the fund accumulates over the years without unviable impact on the present budget. In case an unforeseen disaster takes place, the accumulated funds can be used to finance the losses. MOF, Govt. of Mongolia

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Contingent credit arrangements do not transfer risk, but rather spread it intertemporally. As explained earlier, in exchange for an annual fee, the right is obtained to take out a specific loan amount post-event that has to be repaid at contractually fixed conditions.

Flow of Funds from Three Instruments Capital Accumulation

+

a) Reserve Fund

Fund Payment

-

+

b) Contingent Credit

Credit Payment

Administrative Costs

Debt Repayment

+

c) Insurance

Insurance Payment

Premium

Fig.2- Flow of funds from three ex-ante financing instruments Reserve Fund, Contingent Credit and Insurance 5.1.3 Insurance and development bonds Development of insurance markets requires updating legislation and institutional set up. Although most of the weaknesses exist on the demand side (such as the lack of enforcement of building codes and difficulties in assessing asset values, and the generally low capacity of clients to pay premiums), supply-side adjustments are also necessary. These include strengthening independent supervision systems to improve monitoring of the solvency of insurance companies and eliminate conditions that favor anticompetitive practices. There is also a need to establish the necessary conditions for the use of innovative capital market mechanisms such as catastrophe or natural calamity bonds, commodity futures and weather-related derivatives. These instruments, MOF, Govt. of Mongolia

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which may be of interest to international financial entities, avoid the major difficulties related to asset valuation and loss settlement procedures, but have to be implemented at pool or governmental levels. The same arguments hold good for life and non-life insurance. But, catastrophe or natural calamity bonds are difficult to be developed by developing countries like Mongolia which lack efficient money and capital markets. It may be easier for Mongolia to develop other kinds of bonds such as “development funds” (viz. municipal, social, urban, rural, roads, infrastructure development bonds etc.) to meet critical needs. This can be helped by international development agencies. Another instrument that could be highly useful is to establish a “contingent liability fund” and to make budgetary contributions. Government of Mongolia has already established such a contingent fund, road development fund and a general Development Fund. The private sector also has the direct investment option. The community-wide formal and informal financing instruments perform a very important role at the local level by supplying resources, particularly in poorer areas. Regardless of the source of financing, the implementation of these mechanisms requires close cooperation between the public and private sectors, especially in reference to the establishment of the appropriate legal and regulatory framework. Table-8 summarizes various sources of ex ante and ex post disaster financing. The ex ante non-reimbursable and reimbursable financing mechanisms without risk transfer include grants and credits. The corresponding risk transfer instruments encompass insurance and natural calamity bonds, which can cover the damage based on real losses (indemnification) or the parametric payments. Financing instruments established ex post include grants, taxes, emergency and reconstruction loans, and refinancing of existing loans. In the event of a disaster, immediately available and lowest-cost financing options, such as an existing calamity fund or catastrophe bonds, insurance and reinsurance, are generally used first. Similarly, part of budgeted resources from the existing government programs would be transferred to meet immediate emergency needs. In some cases, existing development funds (municipal, social, urban, rural) may also be used. Government can also impose an emergency cess or tax on the existing tax payers. At the same time, the government would seek as much international aid and donations as possible and resort to contingency credits.

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Table-8 Provisional Classification of Disaster Financing Mechanisms

5.2 Management of Contingent Liabilities 5.2.1 Contingent liabilities- definitions and measurement Contingent liabilities are defined by the System of National Accounts 1993 as contractual financial arrangements that give rise to conditional requirements either to make payments or to provide objects of value. A key characteristics of such financial arrangements, as distinguished from the current financial liabilities, is that one or more conditions or events must be fulfilled before a contingent liability takes place. A key characteristic that makes such liabilities different from normal financial transactions is that they are uncertain. Contingent liabilities represent potential claims against the government, which have not yet materialized, but which could trigger a firm financial obligation or liability under certain circumstances. Several studies have shown that contingent liabilities, once materialized, can be a major factor in the build up of public sector debt and can pose significant risks to the government’s balance sheet. Contingent liabilities are of two main types- explicit and implicit. Explicit contingent liabilities are based upon legal and contractual commitment. Explicit contingent liabilities include bonds or other liabilities contracted by the government with put options for lenders, credit-related guarantees, performance MOF, Govt. of Mongolia

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guarantees, various types of government insurance schemes (e.g., against banking deposits, crop failure, natural disasters, etc.), or legal proceedings representing claims for tax refunds or against government providers of services such as health care, education, defense, housing, etc. Implicit contingent liabilities represent potential claims where government does not have a contractual obligation to provide financial support, but society expects the government to provide assistance because of moral considerations. Implicit contingent liabilities include bailing out weak banks or failed financial institutions or meeting the obligations of the subnational (state and local) governments or the Central Bank in the event of default following systematic financial crisis. Other implicit contingent liabilities include disaster relief, corporate sector bail outs, municipal bankruptcy, defaults on non-guaranteed debt issued by subnational governments and state-owned enterprises or government obligations under a fixed exchange rate regime to defend its currency peg. These risks can be particularly significant in emerging market economies like Mongolia undergoing financial sector and capital convertibility reforms and where the regulatory bodies and disclosure standards are weak. 5.2.2 Fiscal Risk Matrix for Mongolia Following Polackova (1998), contingent liabilities can be best described in terms of a Fiscal Risk Matrix classifying sources of potential risks on government finance into four types: direct or contingent, each of which may be explicit or implicit. Table-9 presents a typical fiscal risk matrix for Mongolia. Contingent liabilities are complex and not easy to quantify. There is no single and uniform framework for their measurement. The choice of a technique depends on the type of contingent liability being measured and the availability of requisite data and information. It is well recognized that cash based accounting systems, even supplemented by off-budget and off-balance sheet transactions, are not suitable for managing contingent liabilities. Only the accrual accounting systems can capture contingent liabilities as they are created. Within such systems, contingent liabilities can be recorded at full face value or maximum potential loss or expected value and expected present value of contracts.

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Table-9: Fiscal Risk Matrix for Mongolia Liabilities Explicit

Direct •

•

• •

Implicit

•

Contingent

Sovereign debt (domestic and external) Committed Expenditureslegal and nondiscretionary in the long term (civil service salaries and wages, social security and insurance contributions, employment of specialized staff in rural areas, pension other compensation to civil servants, Social Welfare Fund) Benefits to children and poor families Benefits to SMEs and rural areas, jobs creation and national development

• • •

• • • •

Future recurrent costs of • public investment projects • • •

• •

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Direct guarantees for external loans by Aimags, local bodies, budgetary entities and public sector enterprises Guarantees on currency risks of foreign loans by commercial and development banks, if any Guarantees on various types of risks (including market, currency, regulatory, political) in Built on Transfer (BOT) contracts or other Public-Private Partnership, for the development of infrastructure and social sectors Umbrella guarantees for various types of loans (agriculture, agro-business, micro-enterprises, housing etc.) Deposit insurance of savings and commercial banks Guarantees on benefits (unfunded liabilities) of the social security system Future health care financing Support to insurance and pension companies in case of financial crisis; Support to Bank failures (beyond state insurance or guarantees) Support to Bank of Mongolia (the central bank) in case possible default Possible need to further recapitalize week commercial and development banks Cleanup of the past liabilities of privatized entities Support to institutions of national interest (in case of financial crisis and for non-guaranteed obligations)

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5.2.3 Lessons from International Best Practices The issue of managing contingent liabilities in an emerging economy like Mongolia is to be seen in the broader context of economic development. Provision of government guarantees per see is not bad. But, problems of contingent liabilities arise when the risks inherent in such liabilities are not properly assessed and quantified, and adequate provision is not made for the possible impact of such risks. There is no fundamental difference between the risks associated with direct Government loans and risks associated with Government guarantees. In both cases, the Government has to use taxes to pay back lenders. In some cases, guarantees can be better than direct loans because guarantees can be made more explicit and can cover only sub sets of risks, while the rest of the risks can be assigned to the private operators and insurance companies. But Government should make proper appraisal and use discretion while granting guarantees. 5.2.4 Management of contingent liabilities Explicit contingent liabilities may represent a significant balance sheet risk for a government. However, unlike most government financial obligations, contingent liabilities have a degree of uncertainty. They are exercised only if certain events occur, and the size of the actual fiscal outgo depends on the structure of the contingent liabilities. Sound public policy requires that a government needs to carefully manage and control the risks of their contingent liabilities. The most important aspect for this is to establish clear criteria as to when contingent liabilities will be used and to use them sparingly. In a well-managed program, the government debt office may be called on to assist in evaluating the government’s cost and risks under the contingent liabilities, and to recommend policies for managing these risks. Experiences of the industrialized countries suggest that more complete disclosure, better risk sharing arrangements, improved governance structures for state-owned entities and sound economic policies can lead to substantial reductions in the government’s exposure to contingent liabilities. An emerging country like Mongolia can adopt several public policy measures to contain the risk of contingent liabilities. These include the following: 1. As an initial step towards risk management, it is necessary to promote disclosure and accountability with regard to explicit contingent liabilities. A centralised unit may be set up in the Department of Fiscal Policy and Coordination in the MOF to identify and measure the magnitude and MOF, Govt. of Mongolia

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associated risk of all contingent liabilities. However, disclosure of implicit contingent liabilities could result in greater moral hazard costs for the government if the stakeholders take this disclosure as a commitment or indication that the government is likely to provide future financial assistance in the case of defaults. 2.

In its Code of Good Practices on Fiscal Transparency, the IMF has recommended that countries should disclose the central government contingent liabilities in their Budget documents, provide a brief indication of their nature and extent, and indicate the potential beneficiaries. The Code suggests that best practice in the area would involve providing an estimate of the expected cost and the degree of risk for each contingent liability wherever possible and the basis for estimating expected cost and risk.

3. Best management practice for contingent liabilities is to make adequate provision for expected losses and to hold additional assets against the risk of unexpected losses. In cases where it is not possible to derive reliable cost estimates, the available information on the cost and risk of contingent liabilities should be summarized in the notes to the Budget tables or the government’s financial accounts. 4. It is useful that the said centralised unit designs and issues contingent liability instruments and monitors the associated risk exposures, and ensures that the government is well informed of these risks. 5. Once the concepts, definitions, methodology and data problems have been resolved and key organisational challenges addressed, a computerized recording system for management of debt and contingent liability could be introduced. Ministry of Finance, Mongolia is using the UNCTAD Debt Management and Financial Analysis System (DMFAS) for recording and monitoring external debt. The same system can be easily extended for management of internal debt and contingent liabilities. 6. A guarantee fee must be charged for all guarantees. The fee needs to be determined on the basis of the cost of borrowing plus the cost of provisioning. Guarantee fees collected should not be taken as general revenues; rather be kept in a separate contingency fund or contingent liability redemption fund. The revenue from the guarantee fee will enable adequate reserves to be built up over time. The government still may have to allocate some initial capital from general revenues into the Reserve Fund in the event that the contingent liability is called prior to the build up of sufficient reserves. The Government of Mongolia has already established such a Contingency Fund.

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7. Sound risk sharing arrangements would include providing termination dates or sunset clause for the contingent claims, pricing the contingent liability on a risk adjusted basis and charging the beneficiaries accordingly. 8.

Risks associated with contingent liabilities can be reduced by promoting sound governance rules for managing sub-national entities and state-owned enterprises, and making them accountable for managing their own risks.

9.

It is equally important to improve the supervision and regulation of the banking and insurance system and capital markets, including the use of such instruments as mandatory risk limits and minimum capital adequacy norms. Stronger accounting and disclosure requirements for private corporations are important mechanisms for limiting the likelihood that a systemic crisis might occur, and will limit the government’s exposure if it does.

10. The odds for the occurrence of a financial crisis and so the risk of implicit contingent liabilities can be reduced by sound macro-economic policies, complemented by appropriate legal, regulatory and institutional set-up for effective prudential regulation, monitoring, surveillance and supervision of the financial system and improved corporate governance. However, these entail structural reforms with an unavoidably long-time scale. 5.3 Management of Public Debt 5.3.1 Public Debt of Mongolia Mongolia’s public debt at around 55 percent of GDP is not high as judged by international standards, and it does not pose any problem for financing debt services as the Government of Mongolia has maintained a surplus on current fiscal account for the last few years. However, government revenues are highly dependent on mineral taxes and are subject to risk in volatility of international prices of minerals, particularly copper and gold. Although there is surplus on minerals account, there is a significant deficit on non-minerals balance. One of the major challenges for the government to maintain fiscal sustainability is to reduce non-minerals deficit over time by widening tax base to include services which now account for about 55 percent of Mongolian GDP but remains relatively under-taxed. It is also necessary to strengthen tax administration for personal and corporate income taxes and value added tax. At present the personal income tax is ten percent at all levels of income which does not satisfy the basic equity for a tax system. It may be necessary to make it progressive while strengthening the tax administration to deal with tax evasion. On the expenditure side, there may be a need to set limits on rise of salaries, subsidies and social securities as have been explained earlier in financial planning.

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5.3.2 Debt Sustainability and Fiscal Deficit Debt sustainability is closely related to the fiscal deficit, particularly to the primary deficit (i.e. fiscal deficit less interest payments). Sustainability requires that there should be a surplus on primary account. It also requires that the real economic growth should be higher than the real interest rate. Countries with high primary deficit, low growth and high real interest rates are likely to fall into debt trap. Economic theory states that high fiscal deficit spills over current account deficit of the balance of payments. Persistent and high levels of current account deficit is an indication of the balance of payments crisis and needs to be tackled by encouraging exports and non-debt creating financial inflows. At present, Mongolia does not face these problems. For the past few years, Mongolia has high economic growth, surplus on both domestic and external current account and very low (in fact negative) real interest rate on external debt. These positive developments should not lead to complacency on the part of the government. The main challenge will be to ensure fiscal sustainability, low inflation rates and stability in real exchange rates by adopting strict fiscal and monetary discipline and sound management of mineral resources. Medium term output is vulnerable to unfavourable weather shocks in the domestic sector and risk of sharp fall of global prices of minerals, which may lead to fall in government revenues and put constraints on social welfare and investment programs financed by the windfall profits tax on minerals. Among other challenges, public investment plan needs to address the environmental degradation due to overuse and illegal trade in forest products and wild life. Overexploitation of natural resources, lax control on smaller mines and faster urbanization may lead to loss of agricultural production, shortage of water supply, sanitation problems, traffic hazards and pollution. These issues also put constraints for achievement of primary education and the achievement of environmental targets in the Millennium Development Goals. 5.3.3 Risk Management Systems for Public Debt Public debt needs to be managed in such a way that the required amount of financial resources is raised at the lowest possible medium and long-term cost and with a prudent degree of risk. Risks include foreign exchange and financial crisis; change in creditworthiness and insolvency (‘debt distress’); leading to economic crisis and social instability (as in the case of East Asian crisis in 19971999). Ministry of Finance should have a risk management framework that identifies and assesses the financial and operational risks for the management of public debt including external debt.

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(a) Independent and Integrated Public Debt Office International best practices indicate that there is generally an independent and integrated public debt office dealing with both internal and external debt, and in most of the countries such an office is situated in the Ministry of Finance. Although the MOF in Mongolia deals with management of domestic and external debt, there is no such well structured and integrated office. There is a need to set up an independent and integrated Public Debt Office under the Ministry of Finance with the following functions:

• To deal with both domestic and external debt • To set bench marks on interest rate, maturity mix, currency mix, composition of debt in terms of domestic debt and external debt. • Identification and measurement of contingent liabilities • Policy formulation for debt management • Monitoring risk exposures • Building Models in Assets Liability Management (ALM) framework (b) Composition and Function of the Public Debt Office: Public Debt Office will consist of the following independent debt offices with associated functions: (i)Independent Front Offices, which are responsible for negotiating new loans with multilateral and bilateral funding organisations and other sources of internal and external finance. (ii)Back office, which is responsible for auditing, accounting, data consolidation and the dealing office functions for debt servicing. (iii) (iv)Middle office, which is responsible for identification, assessment, measurement and monitoring of debt and risk, dissemination of data and policy formulation for both short and medium term, and setting benchmarks for debt composition and currency-interest rate- maturity mix, and (v)Head Office, which accords final approval for both internal and external debt. (c) Transparency in Risk Management: Debt management objectives should be clearly defined, documented and disclosed at all levels dealing with debt management. The measures of cost and risk that are adopted should be explained. Objectives of debt management and preferred policies and measures should be clearly indicated by the middle office. Equally important are the rules, regulations, institutional and legal framework for debt management. Some may feel that having a comprehensive debt management system as described here will be expensive, but not having one may be more expensive. MOF, Govt. of Mongolia

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Table-10 Institutional Arrangement of Debt Offices and Annual Borrowing Authority and Total Outstanding Debt Ceiling Limit Institutional Arrangement

Countries

Limit on Annual Borrowing Authority

Total Outstanding Debt Ceiling Limit

Ministry of Finance × × × × × × ×

Belgium Canada Finland France Germany Greece Hungary India Italy Mexico Morocco New Zealand United States United Kingdom

× × × × × ×

Autonomous Agency × × × ×

Australia Ireland Portugal Sweden Central Bank ×

Denmark

Source: Guidelines for Public Debt Management, SM/00/135, IMF.

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Table -11 Legal Framework for Debt Offices Countries

Limit for Domestic Borrowing

Decides new limits

Ministry of Finance Belgium

Limit on the cost of borrowing

The Parliament

Canada

Yes, Borrowing Authority Act

The Parliament

Yes, a limit is set by federal legislative authorization (Budget Law) No, except for the limit to T-Bills

The Parliament

Yes, a limit is set by Fiscal Responsibility and Budget Management Act 2003 Yes, a limit is set by Budget Law Yes, a limit is set according to the Federal Budget Implicit limit (budgeted borrowing requirement) No legal limit

The Parliament

Germany Greece India Japan Mexico Netherlands New Zealand Switzerland Turkey United Kingdom Autonomous Agency Australia Austria Ireland Sweden

No legal limit Only for govt. bonds the limit is twice the budget deficit Limit by the funding remit Yes, financial year budgetary need Yes, the limit is set by the Financial Law No Limit only for foreign exchange funding

The Parliament The Congress MOF may alter the program For govt. bonds, the Parliament DMO and the Treasurer The Parliament -

Central Bank Denmark

Limit on the level of debt The Parliament outstanding Source: OECD as mentioned in “Risk Management of Sovereign Assets and Liabilities”, Working Paper, WP/97/166, IMF, December 1997.

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(d) Limits on Public Debt: As regards legal framework, many countries have enacted Fiscal Responsibility and Budget Management Acts and have set limits on annual borrowing and total outstanding public debt as a percentage of GDP. Parliament is the appropriate authority to set new limits of public debt (see Table10 and Table-11). It will be beneficial for Mongolia to legislate similar acts with limits on fiscal deficit, annual borrowing and total outstanding public debt. (e) Basic Principles of Risk Management: The risks in the structure and composition of total debt should be carefully monitored and evaluated. Special attention may be given to risks associated with foreign-currency and short-term or floating rate debt due to exchange rate fluctuations over time. The risks should be mitigated to the extent feasible by modifying the debt structure and taking into account cost of doing so. (f) Risk Management Framework: A risk management framework should help to identify and manage the trade-offs between expected cost and risk in the debt portfolio. Cost includes financial cost of raising capital and potential cost of business loss. Market risk is measured in terms of potential increases in debt servicing costs associated with changes in interest or exchange rates. (g) Assessment of Risk: Another task of the Public Debt Office is to identify measure and monitor risk. There are various models for risk assessment: • To conduct stress tests of the debt portfolio based on economic and financial shocks. • Simple scenario models used by the World Bank and IMF. • To project future debt services over medium and long term. • To list key risk indicators over time. • To summarize costs and risks for alternative strategies and debt portfolio. 5.4 Management of External Debt 5.4.1 Various Risks of External Debt External debt constitutes about 95 percent of public debt and is subject to various risks such as liquidity risk, exchange rate risk, market risk, convertibility risk, interest rate risk and yield risk (see Box-1). At present, external debt service ratio at 2 percent of exports does not pose any problem for the Mongolian economy, but in future debt sustainability may be at risk if there is sudden fall of international prices of Mongolia’s major exports or unexpected rise of prices of major imports. Significant falls in the global prices of copper, coal, gold and cashmere and substantial rise of prices of petroleum products may affect adversely the current account of the balance of payments and may lead to the problem of external debt servicing for Mongolia. MOF, Govt. of Mongolia

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Box 1. Risks for External Debt A. External Market-Based Risks (A1) Liquidity risk. Shortage of revenues, cash and foreign exchange to repay debt and make interest payments. East Asian financial and foreign exchange crisis during 1997-1999 is the best example of liquidity crisis. (A2) Interest rate risks. While fixed interest rate has the advantage of having fixed interest payments over time, there may be a substantial loss in a regime of falling interest rates. Solution lies to have a proper mix of variable and fixed interest rates. (A3) Rollover risk. The risk that debt will have to be rolled over at an unusually high cost or in extreme cases that it cannot be rolled over at all. To the extent that rollover risk is limited to the risk that debt has to be rolled over at higher interest rates, it may be considered a type of market risk. (A4) Credit risk. Central government on-lends external debt to Aimags, local governments and public sector enterprises. Losses may arise if these investments donot have sufficient yields to repay debt and pay associated interests. (A5) Currency risk. Currency risk arises when there is substantial depreciation of the domestic currency in terms of the currencies in which external dent is denominated. (A6) Settlement risk: Refers to the potential loss that the government could suffer as a result of failure to settle, for whatever reason other than default, by the counterparty. (A7) Convertibility risk: Easy convertibility of the domestic currency may lead to capital flight at the slight anticipation of crisis. (A8) Budget/ Fiscal Risk: Fiscal risk may arise from unanticipated shortfalls in revenue or expenditure overruns. Government should consider both budget and offbudget liabilities and try to minimize contingent liabilities. B. Operational and Management Risks (B1) Operational Risk is the risk that arises from improper management systems resulting in financial loss. It is due to improper back office functions including inadequate book keeping and maintenance of records, lack of basic internal controls, inexperienced personnel, and computer failures. Probability of default is high with inadequate operational and management systems. (B2) Control system failure risks arise due to outright fraud and money laundering because of weak control procedures, inadequate skills, and poor separation of duties. (B3) Financial error risk. Incorrect measurement and accounting may lead to large and unintended risks and losses. C. Country specific and political risks influence foreign investment by the multinational companies. Political and economic stability, scale economies, lower wages, fiscal incentives, high yields, trade openness and open door policy for foreign investment stimulate non-debt creating financial flows. Foreign capital is also attracted by countries which allow free repatriation of capital and profits, and donot insist on appropriation of private capital in public interest. Source: Tarun Das (2006a)

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Debt sustainability basically implies the ability of a country to service all debts – internal and external on both public and private accounts- on a continuous basis without affecting adversely its prospects for growth and overall economic development. It is linked to the credit rating and the creditworthiness of a country. 5.4.2 Risks for Alternative Modes of Capital Transfer Capital inflows to Mongolia had been mainly in the form of concessional loans from multilateral and bilateral countries. There is very small reliance on non-debt creating flows or other modes of capital due to underdeveloped capital and bond markets. Such a system may not be sustainable for a long time and there is need to diversify foreign capital market. Major alternatives to concessional financial assistance include the following: (a) Syndicated bank lending (b) Bond lending (c) Financing through new instruments such as derivatives consisting of interest and exchange rate swaps and options (d) Foreign Direct Investment (FDI) (e) Foreign portfolio investment in equities (f) Foreign quasi-equity investments such as joint ventures, licensing agreements, franchising, management contracts, turnkey contracts, and all kinds of Built-Operate-Transfer (BOT) agreements. While bond lending and lending through new instruments together with syndicated bank lending are forms of general obligation finance in the sense that the lender provides money to be repaid on terms independent of the success of investment made with the funds, financing by other alternatives (i.e., FDI, foreign portfolio investment and foreign quasi-equity investment) involves risk-sharing and responsibility sharing. For example, under FDI an investor is entitled to a share of the distributed profits of a firm and an investor also shares in the responsibility of managing the firm. Portfolio investment is similar, except that it does not encompass sharing management responsibility. Unlike other capital flows, FDI is a package that embodies capital along with technology and managerial, marketing and technical skills. Presence of multinationals promotes greater efficiency and dynamism in the domestic sector and widens external trade. Training gained by local employees and their exposure to modern organizational system and international best practices are valuable assets for the host country. These sources of foreign capital can be assessed in terms of expected cost, degree of risk-sharing and degree of managerial participation in the project (Table-12). The major advantages of foreign direct investment, foreign portfolio investment and foreign quasi-equity investment are that they involve risk sharing, MOF, Govt. of Mongolia

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sharing of managerial responsibilities and the promotion of a more efficient use of resources. Foreign portfolio investment, in addition, has a favorable impact on local capital markets. Table-12: Relative risks of alternative sources of capital Modes of capital (1) 1.Bank lending

Expected Cost (2) High

Risk-sharing (3) Low

Management-sharing (4) Low

2.Bond Lending

Medium

Low

Low

3.Market derivatives

Medium

Medium

Low

4.Foreign Direct Investment

High

High

High

5.Foreign Portfolio Equity

Medium

Low

Low

6.Quasi-Equity Investment

Medium

High

Medium

5.4.3 External Debt Sustainability Measurements There are broadly two approaches to determine debt sustainability of a country. One is to develop a comprehensive macroeconomic model for the medium term particularly emphasizing fiscal and balance of payments problems, and another is to assess various risks associated with debt and to monitor various debt sustainability ratios over time. Economy wide model is constructed in the Asset and Liability Management (ALM) Framework and is aimed at minimizing cost of borrowing subject to specified risks or to minimize risk subject to specified cost. Benefits of such models are quite obvious. The model can be used not only for debt management but also for determination of optimal growth, fiscal profiles, medium term balance of payments etc. However, building up such models requires not only huge data but also expertise on the part of modelers for which there may be constraints in developing countries like Mongolia. Alternatively, various debt sustainability indicators, indicated in Table-13 may be regularly measured and monitored.

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Table-13: Debt Sustainability Indicators Purpose 1. Solvency ratios

Indicators (a)

(b) (c) (d) (e) (f)

(g) (h) (i) 2. Liquidity monitoring ratios

(j) (k) (l) (m) (n) (o)

3. Debt burden ratio

(p) (q) (r) (s) (t)

4. Debt structure indicators

(u) (v) (w)

(x) (y) (z) 5. Public sector indicators

Ratio of interest payments to exports of goods and services (XGS) Ratio of interest payments to foreign exchange reserves Ratio of interest payments to revenue Ratio of external debt to GDP Ratio of external debt to XGS Ratio of external debt to revenue Ratio of present value of external debt to GDP Ratio of present value of external debt to XGS Ratio of present value of external debt to revenue Debt service ratio: Ratio of total debt services (interest payments plus repayments of principal) to XGS Ratio of interest payments to reserves Ratio of short-term debt to XGS Ratio of total imports to foreign exchange reserves. Ratio of reserves to short-term debt Ratio of short-term debt to total debt Ratio of external debt outstanding to GDP Ratio of external debt outstanding to XGS Ratio of debt services to GDP Ratio of public debt to budget revenue Ratio of concessional debt to total debt Rollover ratio- ratio of amortization (i.e. repayments of principal) to total disbursements Ratio of interest payments to total debt services Ratio of short-term debt to total debt Average maturity of external debt Currency mix of external debt Ratio of government external debt to total public debt

(aa)

Ratio of public sector debt to total external debt Ratio of public sector debt to GDP Ratio of public sector debt to XGS (dd) Ratio of public sector debt to revenue (ee) Ratio of concessional debt to total external debt (ff) Ratio of concessional debt to total public debt (gg) Average maturity of public debt (hh) Average maturity of non-concessional debt (ii) Ratio of foreign currency debt to total public debt Source: IMF (2003) and Tarun Das (2006a) (bb) (cc)

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5.4.4 Risk Management Policies for External Debt Although there is no unique solution to tackle various types of risk, general risk management practices of the government aim at minimizing risk for government bodies and public enterprises. These include development of ideal benchmarks for public debt and monitor and manage credit risk exposures. Typical risk management policies are summarized in Table-14. Table-14 Policies for Risk Management Risk Management Policies

Type of Risk 1. Liquidity risk

2. Interest rate risk 3. Credit risk 4. Currency risk

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m)

(n) 5. Convertibility risk

(o)

(p) (q) 6. Budget Risk

(r) (s) (t)

7. Operational risks

(u)

(v) 8. Country specific (w) and political risk (x)

MOF, Govt. of Mongolia

Monitor debt by residual maturity Maintain certain minimum level of cash balance Fix limits for short-term debt Do not negotiate for huge bullet loans Develop liquidity benchmarks Fix benchmark for ratio of fixed versus floating rate debt Use interest rate swaps Have credit rating by major credit rating organizations Have proper project appraisal before lending; Fix benchmark for the ratio of domestic and external debt Fix ratios of short-term and long-term debt Fix composition of currencies for external debt Use currency swaps and have policies for use of market derivatives Try to have natural hedge by linking dominant currency of exports and remittances to the currency of external debt Gradual approach towards capital account convertibility. Eencourage initially non-debt creating financial flows followed by long term capital flows. Short term or volatile capital flows may be liberalised only at the end of capital account convertibility. Enact a Fiscal Responsibility Act. Put limits on debt outstanding, annual borrowing, fiscal deficit Use government guarantees and other contingent liabilities (such as insurance and pensions etc.) judiciously and sparingly Allow independence and transparency of different offices (such as front, back, middle and head offices) dealing with public debt Strengthen capability of different offices Have stable and sound macro-economic policies Have co-ordination among monetary and fiscal authorities

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5.4.5 Stress Tests Stress tests are closely related to the debt sustainability indicators and are useful in identifying major liquidity risks, as well as strategies to mitigate them. Stress tests can be used to test a variety of scenarios such as the following: (a) Types of capital inflows (FDI, trade credit, other credits) (b) Periods of access to capital markets (c) Exchange rate changes/ derivative positions (d) Risks due to price and interest rate changes (e) Macroeconomic uncertainties (such as outlook for exports and imports) (f) Policy uncertainties (fiscal and monetary policies) (a) Standard Stress Tests (a) (b) (c) (d) (e) (f)

Revenue growth = Baseline GR – 1 SD Export value growth = Baseline GR – 1 SD Assets value growth = Baseline GR – 1 SD Inflation rate = Baseline Rate + 1 SD Net non-debt creating flows = Baseline Inflows – 1 SD One-time major nominal or real exchange rate depreciation = Baseline + ½ SD (b) Indications of debt distress episodes

Debt distress indicated by recourse to any of the following forms of exceptional finance: (a) Arrears: Number of years in which principal and interest arrears to all creditors is in excess of 5% of total debt outstanding (b) Debt rescheduling: Year of initial debt restructuring plus two subsequent years (c) Bailout by financial institutes (d) Normal times are non-overlapping periods of five years in which no signs of above mentioned debt distress are observed. (c) Determinants of debt distress • Traditional Debt Indicators – Present value of debt/exports ratio – Present value of debt/revenues ratio – Present value of debt/assets ratio – Debt service/exports ratio – Debt service/revenues ratio – Debt service/assets ratio

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• Shocks – Real revenue growth – Real depreciations – Assets value growth (d) Quality of institutions and policies 1. Substantial value-added in looking at role of organizational quality, good governance, policies and shocks in addition to traditional debt burden indicators when assessing probability of debt distress 2. Using a common debt-burden threshold to assess sustainability for all companies is unlikely to be appropriate 3. There is a strong tradeoffs between quality of institutions, policies, systems of auditing and sustainable level of debt (e) Indicative Debt and Debt-Service Thresholds (%) On the basis of experiences of several countries, World Bank has determined thresholds for various debt indicators for a country depending on the quality of its debt management policies and systems. These indicators are presented in Table-15. For example, if a country’s debt management policies and systems are considered to be poor, then the ratio of net present value of debt to total assets for the country should not exceed 30 percent. The NPV debt/ assets ratio can go up to 45 percent for a country having medium quality for debt management system, while the ratio can go up further to 45 percent for a country having a strong and very efficient system for debt management policies and systems. Other thresholds have similar interpretations. Table-15 Thresholds for Debt Indicators (in percentage) Indicators Quality of Debt Management Policies and Systems Poor Medium Strong NPV of debt/Assets 30 45 60 NPV of debt/XGS 100 200 300 NPV of debt/Revenue 200 275 350 Debt Service/XGS 15 25 35 Debt Service/Revenue 20 30 40 (f) Debt Distress Classifications • • • •

Low risk— all indicators well below thresholds Moderate risk—baseline OK, but scenarios/shocks exceed thresholds High risk—baseline in breach of thresholds In debt distress—current breach, that is sustained over projection period

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Financial Planning Methodology and Policies – Tarun Das

5.4.6 International best practices for external debt management (a) Legal and Institutional Set Up As regards legal and institutional set up, International experience suggests that centralized debt offices in most of the countries are located under the Ministry of Finance (MOF), only in Sweden it is located in the Central Bank, while five countries viz. Australia, Austria, Ireland, Portugal and Sweden have independent debt office, not a part of either the MOF or the Central Bank (see Table-16). There is an advantage of locating the debt management office in the MOF. This is because MOF in general is in charge of dealing with multilateral financial institutions and bilateral donors. Within this institutional structure, in most of the advanced countries, the debt offices are set up as an autonomous or separate entity within a Treasury or as a statutory unit. This enables the debt office to assume sufficient degree of operational independence. It is observed from the legal systems in Brazil, India, Indonesia, Ireland, New Zealand, Poland, the UK and others that, as a general rule, the Minister of Finance is entrusted with all responsibilities relating to state finance, not only in the context of representing the state externally, but also with respect to internal matters such as reporting to Parliament and managing the domestic debt. The main argument for entrusting the public debt management responsibility with the Ministry of Finance or Treasury is the proximity of location, which enables the senior management within the Ministry of Finance to review, assess and monitor public debt more easily. Another factor, which prompted many governments to locate the debt office within the Ministry of Finance, is that the public debt has budgetary implications in terms of payments of debt services, and co-ordination between the budget office and the debt office facilitates effective management of debt and fiscal deficit. This arrangement, thereby, minimizes chances of any conflict arising out of the budgetary process determining the annual borrowing requirements and the management of such liabilities. As regards governance of external debt, most of the countries donot allow Sub national or provincial governments to borrow directly from the external sources (see Table-17). Only the Central government borrows from multilateral and bilateral sources and then on-lends money to the states and local governments. Government of Mongolia has also the same system of locating the debt management offices within the MOF. It is necessary to continue with the system but to strengthen its structure, debt management policies and to adopt modern techniques for risk management. (b) Policy Framework MOF, Govt. of Mongolia

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As regards policy framework, international best practices for the management of external debt leads to the following broad conclusions: (1) Management of external debt is closely related to the management of domestic debt, which in turn depends on the management of overall fiscal deficit. (2) Debt management strategy is an integral part of the wider macro economic policies that act as the first line of defense against any external financial shocks. (3) Nearly all of the autonomous debt management offices have adopted an organizational structure similar to that in leading corporate treasury and investment banks. They divide functional responsibilities for managing transactions into different offices within the debt management organization and established procedures to ensure internal control, accountability, checks and balances. (4) Sound governance considerations suggest that debt management functions should be organized as separate units given their different objectives, responsibilities and staffing needs. Usual practice is to establish separate front offices, middle office, back office and head office, as explained earlier. (5) For an emerging economy like Mongolia, it is better to adopt a policy of cautious and gradual movement towards capital account convertibility. (6) At the initial stage, it is beneficia l to encourage non-debt creating financial flows (such as direct foreign investment and equity) followed by liberalization of long-term and medium-term external debt. (7) There is need to have a cautious approach on external short-term credit. In many developing countries, like India, government does not resort to any short term borrowing from external sources, although the private sector is allowed to borrow short-term credit externally subject to certain conditions. (8) Big bullet loans are bad for small economies like Mongolia, as these can create refinancing risk in future. (9) It is not enough to manage the government balance sheet well, it is also necessary to monitor and make an integrated assessment of national balance sheet and to put more attention on surveillance of overall debt- internal and external, private and public. In each of the major Asian crisis economiesMOF, Govt. of Mongolia

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Indonesia, Korea and Thailand- weakness in the government balance sheet was not the source of vulnerability, rather vulnerability stemmed from the un-hedged sort-term foreign currency debt of commercial banks, finance companies and corporate sector. (10) It is not sufficient to manage the balance sheet exposures, it is equally important manage off balance sheet and contingent liabilities. Emerging as well as advanced economies have experienced how bad banks can lead to large costs to the economy and an unexpected weakening of the government’s balance sheet. Government guarantees of private debt or public enterprises debt can also have similar adverse impact. (11) It is necessary to adopt suitable policies for enhancing exports and other current account receipts that provide natural hedge and the means for financing imports and debt services. (12) Detailed data recording and dissemination are pre-requisites for an effective management and monitoring of external debt and formulation of appropriate debt management policies. (13) It is vital that external contingent liabilities and short-term debt are kept within prudential limits. (14) It is important to strengthen public and corporate governance and enhance transparency and accountability. (15) It is also necessary to strengthen the legal, regulatory and institutional set up for management of both internal and external debt. (16) A sound financial system with well developed debt, money and capital markets is an integral part of a country’s debt management strategy.

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Table-16 Institutional Location of Public Debt Management Office Country

Under the Ministry of Finance or Treasury

Advanced Economies Australia Austria Belgium Canada Denmark Finland France Germany Greece Ireland Italy Japan Netherlands New Zealand Portugal Spain Sweden Switzerland United Kingdom United States Emerging Economies Argentina Brazil China Colombia Hungary India Mexico Mongolia Korea South Africa Thailand Turkey

Located within the Central Bank

Located elsewhere as an autonomous entity  

                 

           

Source: World Bank, IMF, OECD various documents.

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Table-17 Institutional Framework for Borrowing External Loans and Foreign Currency Denominated Loans Countries

Central Govt.

China

MOF

India

MOF

Indonesia

MOF

Korea

MOF

Mongolia

MOF

Thailand

MOF

Argentina Chile

MOF MOF

Colombia

MOF

Mexico Peru

MOF DMO under MOF

States and Local Govt. Not allowed, only through MOF Not allowed, only through MOF Not allowed, only through MOF Allowed directly

State Owned Enterprises Allowed directly

Not allowed, only through MOF Allowed directly

Not allowed, only through MOF Not allowed, only through MOF Allowed directly Not allowed, only through MOF Allowed directly

Not allowed, only through MOF Not allowed, only through MOF Allowed directly Not allowed, only through MOF Allowed directly MOF Not allowed, only through MOF Not allowed, only through MOF Allowed directly Not allowed, only through MOF Allowed directly

Allowed directly

Hungary

DMO under MOF

Poland

MOF

State Owned banks Not allowed, only through MOF Not allowed, only through MOF Not allowed, only through MOF Not allowed, only through MOF Allowed directly

Russia

MOF

Allowed directly

Allowed directly

Israel

MOF

Allowed directly

Allowed directly

Venezuela

MOF

Czech Republic

None

South Africa

DMO under MOF

Not allowed, Not allowed, only through MOF only through MOF Source: “Managing foreign debt and liquidity risks in emerging economies: an overview”, John Hawkins and Philip Turner, as excerpted in “Managing Foreign Debt and Liquidity Risks”, BIS Policy Papers, No. 8, September 2000. Mongolia added by Tarun Das. MOF, Govt. of Mongolia

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Selected References Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External Debt Management, pp.77-95, in External Debt Management, ed. by A. Vasudevan, April 1999, Reserve Bank of India (RBI), Mumbai, India. _______ (1999b) Fiscal Policies for Management of External Capital Flows, pp. 194207, in Corporate External Debt Management, edited by Jawahar Mulraj, December 1999, Credit Rating and Investment Services of India Ltd. (CRISIL), Mumbai, India. _______ (2000) Sovereign Debt Management in India, pp.561-579, in Sovereign Debt Management Forum: Compilation of Presentations, November 2000, World Bank, Washington D.C. _______ (2002) Management of Contingent Liabilities in Philippines- Policies, Processes, Legal Framework and Institutions, pp.1-60, March 2002, World Bank, Washington D.C. ______ (2003a) Off budget risks and their management, Chapter-3, Philippines Improving Government Performance: Discipline, Efficiency and Equity in Managing Public Resources- A Public Expenditure, Procurement and Financial Management Review (PEPFMR), Report No. 24256-PH, A Joint Document of The Government of the Philippines, the World Bank and the Asian Development Bank, Poverty Reduction and Economic Management Unit, World Bank Philippines Country Office, April 30, 2003. ______ With Raj Kumar, Anil Bisen and M.R. Nair (2003b) Contingent Liability Management- A Study on India, pp.1-84, Commonwealth Secretariat, London. _______ (2003c) Management of Public Debt in India, pp.85-110, in Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies, 2003, IMF and the World Bank, Washington D.C. _______ (2005) International Cooperation Behind National Borders- A Case Study for India, pp.1-50, Office of Development Studies, UNDP, UN Plaza, New York, 2005. _______ (2006a) Management of External Debt: International Experiences and Best Practices, pp.1-46, Best Practices series No.9, United Nations Institute for Training and Research (UNITAR), Geneva, January 2006. _______ (2006b) Governance of Public Debt- International Experiences and Best Practices, pp.1-23, Best Practices series No.10, United Nations Institute for Training and Research (UNITAR), Geneva, January 2006. _______ (2008) Accrual Accounting Rules for Government Finance Statistics, pp.1-36, ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of Mongolia, Ulaanbaatar, January 2008.

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Das, Tarun and E. Sandagdorj (2007a) Strategic Business Planning- objectives and suggested structure for Mongolia, pp.1-95, ADB Capacity Building Project on Governance Reforms, Min of Finance, Govt of Mongolia, Ulaanbaatar, August 2007. _______ (2007b) Output costing and output budgeting, pp.1-50, ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of Mongolia, Ulaanbaatar, October 2007. _______ (2007c) Transition from Cash Accounting to Accrual Accounting, pp.1-35, ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of Mongolia, Ulaanbaatar, October 2007. ________ (2008) Seven-Year (2008-2014) Action Plan for the Complete Implementation of the Provisions of Public Sector Management and Finance Act (27 June 2002), ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of Mongolia, January 2008. International Monetary Fund (2002) Government Finance Statistics Manual 2001, Statistics Department, IMF, Washington D.C., August 2002. _______ (2003a) The Implications of the Government Finance Statistics Manual 2001 for Country Work in the Fund, GFS Policy Development Taskforce, IMF, Washington D.C., August 2003. _______ (2003b) External Debt Statistics- Guide for Compilers and Users, 2003, IMF, Washington D.C. International Monetary Fund and the World Bank (2003) Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies, 2003, Washington D.C. Ministry of Finance, Government of Mongolia (2007) Government Budget 2008, Ulaanbaatar, December 2007. Keipi, Kari Juhani and Justin Tyson (2002) Planning and financial protection to survive disasters, Sustainable Development Department Tech. Studies series: ENV-139, Inter-American Development Bank, Washington D.C., Oct. 2002. Reserve Bank of India (RBI) (1999) External Debt Management- Issues, Lessons and Preventive Measures, pp.1-372, edited by A. Vasudevan, RBI, Mumbai, April 1999. World Bank (2000) Sovereign Debt Management Forum: Compilation of Presentations, November 2000, World Bank, Washington D.C.

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