Debt and Fiscal Management Bogicevic_0.pdf · Projected primary fiscal balances for BH Institutions, RS and FBH ... Joint BH Debt Management Strategy is being prepared with the WBG’s

Debt and Fiscal Management IN REPUBLIKA SRPSKA

Biljana Bogićević │[email protected] Srpska Ministry of Finance │www.vladars.net

PRESENTATION OUTLINE

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Institutional arrangements

Framework for subnational debt management

Choices and constraints in subnational borrowing

Debt management coordination

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44 75 N, 17 25 E

Southeast Europe - bordering Croatia, Serbia, and Montenegro

Area: 25053 sq km (49% of BiH)

Population: 1,3 million (34% of BiH)

Currency: Convertible Mark (BAM)

GDP: USD 5.9 billion

GDP per capita: USD 4,171

Administrative center: City of Banjaluka

INSTITUTIONAL ARRANGMENTS

POLITICAL STRUCTURE

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BH TRIPARTITE PRESIDENCY

Member Chairman Member

BH COUNCIL OF MINISTERS

Chairman

Foreign

Affairs

Finance &

Treasury

Civil

Affairs

HRs &

Refugees

Communication

& Transport

Foreign Trade &

Economic Relations

Security Defense Justice

NominatesApproves

BH PARLIAMENTARY

ASSEMBLEY

HOUSE OF

PEOPLES

HOUSE OF

REPRESENTATIVE

S

Delegated by FBH

House of Peoples

(Croats & Bosniaks) &

RS National Assembly

(Serbs)

HEALTH&SOCIAL

PROTECTION

64 Municipalities

RS GOVERNMENT

(8 Serb-, 5 Bosniak- & 3

Croat-ministers)

M

I

N

I

S

T

R

I

E

S

FINANCE

INTERIOR

JUSTICE

ENERGY, MINING & INDUSTRY

TRANSPORT &

COMMUNICATIONS

LABOR & VETERAN-DISABLED

PROTECTION

ADMINISTRAT. & LOCAL SELF-

GOVERNANCE

EDUCATION & CULTURE

SCIENCE & TECHNOLOGY

ECONOMIC RELATIONS &

REGIONAL COOPERATION

REFUGEES & DISPLACED

PERSONS

PRIME MINISTER

10 Cantonal governments

79 Municipalities

FBH GOVERNMENT

(8 Bosniak-, 5 Croat- & 3

Serb-ministers)

M

I

N

I

S

T

R

I

E

S

FINANCE

INTERIOR

JUSTICE

ENERGY, MINING &

INDUSTRY

TRANSPORT &

COMMUNICATIONS

LABOR & SOCIAL POLICY

DISPLACED PERSONS &

REFUGEES

ISSUES OF VETERANS

HEALTH

EDUCATION & SCIENCE

CULTURE & SPORTS

TRADE

PRIME MINISTER

RS TRIPARTITE

PRESIDENCY

FBH TRIPARTITE

PRESIDENCY

FBH PARLIAMENT

HOUSE OF

PEOPLES

HOUSE OF

REPRESENTATIVE

S

ApprovesElects

Nominates

RS

NATIONAL

ASSEMBLEY

COUNCIL OF

PEOPLES

Nominates

Approves

BH Fiscal Council:

+ 5 Members: 2 Observers:

Chairman of BH Council of Minister BH Central Bank Governor

Prime Ministers of RS and FBH Brcko District Mayor

Finance Ministers of BH, RS and FBH

Adopts: Global Framework of Fiscal Balance and Policies Projected level of indirect tax revenues

Indirect tax revenue share of BH Institutions

Projected primary fiscal balances for BH Institutions, RS and FBH

Upper borrowing limits for RS and FBH – as they are defined in each government level’s legal framework

Mid-term budgets of BH Institutions, RS and FBH aligned with the Global Framework

FISCAL COORDINATION MECHANISM

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FRAMEWORK FOR SUBNATIONAL DEBT MANAGEMENT

Each level of government has a mandate to borrow

Each level of government has its own legal framework regulating debt management:BiH Law on Debt Issuance, Debt and Guarantees

RS Law on Borrowing, Debt and Guarantees

FBiH Law on Debt, Borrowing and Guarantees

Legal frameworks set the borrowing limits for each government level separately:

LEGAL FRAMEWORK

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Total debt 60% of GDP

Public debt 55% of GDP

Short-term debt 8% of the previous

year’s operating revenues

Guarantees 15% of GDP

RSDebt servicing 18% of the (for the existing previouspublic debt and year’s consolidated public guarantees and revenuespotential new debt and guarantees)

FBH- the law provision expired

- the threshold used to be regulated as in FBH

BH

99% of borrowing is on the subnational level – the RS and FBH level

Deficit happens at the entity and lower levels of government - BH institutions’ budget always balanced

Entities in charge of main investment areas (transport, energy, education, health, SSF, labor markets etc.)

Contracting debt:

External debt – 99% contracted through the BH Ministry of Finance and Treasury and on-lent to the subnational levels

Internal debt - directly incurred only by the entities, cantons, municipalities and District Brcko

Choices on financing instruments, lenders, and borrowing terms made on the subnational levels

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CHARACTERISTICS OF BORROWING

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SUBNATIONAL BORROWING REGIME

• RS free to decide how much to borrow, from whom to borrow, what instruments to choose, and on what to spend the borrowed money

• Supported with self-imposed rule on outstanding debt limits

• Preconditions: (1) free and open markets(2) information on debt and debt repayment capacity available (3) no chance of bailout

Market discipline

• High degree of external borrowing centralization with 99% on-lending to RS and FBH

Administrative constraints

• Macroeconomic forecasts and resulting indirect tax revenues jointly formulated

• Overall primary balance targets for each level of government jointly agreed

• Specific debt limits calculated on the basis of self-imposed rules

Cooperative arrangements

CHOICES AND CONTRAINTS IN SUBNATIONAL BORROWING

• Lenders:• banks (90%), insurance companies and

investment and pension funds

• Types: • Bank loans• T Bonds: 4, 5 7 years• T Bills: 3-, 6-, 9-, and 12-month

Domestic borrowing:

• Lenders:• IFIs and bilateral creditors

• Types:• long-term, concessional loans and credits

External borrowing:

CHOICE OF DEBT INSTRUMENTS

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CONSTRAINTS IN DEBT MANAGEMENT

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PORTFOLIO CONSTRAINTS LEGAL CONSTRAINTS

EXTERNAL BORROWING CONTRAINTS

INTERNAL BORROWING CONTRAINTS

Legally defined limits and procedures leave little room for maneuver

Few external funding sources

Shallow domestic market

No access to international financial markets – small size of possible future issuance

Fully dependent on IFIs lending Available financing amounts limited Choice of borrowing purpose limited Budget financing designed for a country as a

whole – triggers defined and must be met at each government level for fund disbursements

Financing instruments characteristics mainly pre-defined by creditor

Fragmented financial market with limited investors base

Commercial banks the biggest lender – mostly foreign owned with strict exposure limits

Little secondary market trading

Borrowing from the CBBH not possible

DEBT MANAGEMENT COORDINATION

Exchange of information on debt:

BH Ministry of Finance and Treasury <-> Central Bank of BH: External debt

BH Ministry of Finance and Treasury (Disbursement advice) <-> RS and FBH ministries of

finance (data on direct external debt, domestic debt, cantonal governments’ debt, local governments’ debt and SSFs’ debt)

Joint BH Debt Management Strategy is being prepared with the WBG’s technical assistance:

Joint macro framework

Joint portfolio indicators

3 preferred debt strategies - RS, FBH and Brcko District

Other deliverables of the WBG’s technical assistance:

Reform plans for RS DMD including RS Debt Management Strategy

Reform plan for FBH DMD including FBH Debt Management Strategy

COORDINATION AREAS

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QUESTIONS?

Biljana Bogićević│[email protected]

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Thank you!