Back Matter

References

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  • Schaechter, Andrea, Kinda, Tidiane, Budina, Nina, and Weber, AnkeFiscal Rules in Response to the Crisis—Toward the “Next-Generation” Rules. A New DatasetIMF 2012, WP/12/187 (Washington: International Monetary Fund).

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  • Schipke, Alfred (Author, Editor), Aliona Cebotari (Editor), Nita Thacker (Editor), Sebastian Acevedo (Contributor)The Eastern Caribbean Economic and Currency Union: Macroeconomics and Financial SystemsInternational Monetary Fund 2013, (Washington).

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  • Theis, Rechtsanwälte GmbH & Co KGThe Wolf Theiss Guide to: Public Debt Management in Central, Eastern & Southeastern Europe2012.

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  • U.K. TreasuryExplanatory Memorandum to the Government Alternative Finance Arrangements Regulations 2014: No. 1327Available at http://www.sukuk.com/wp-content/uploads/2014/05/uksiem_20141327_en.pdf.

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  • UNITAR/International Monetary Fund, “A General Overview of Legal Issues in Debt ManagementBradlow Daniel D., 2004 (Washington).

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  • Wedderburn-Day, Roger A.,Sovereign Sukuk: Adaptation and Innovation”, 2010, available at http://www.law.duke.edu/journals/lcp.

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1

Elsie Addo Awadzi is Senior Counsel at the Legal Department of the International Monetary Fund (IMF). The views expressed herein are the author’s and should not be attributed to the IMF, its Executive Board, or its management. The author is grateful to Tomas I. Magnusson, Wouter Bossu, Yan Liu, Katharine Christopherson Puh, Alessandro Gullo, Julianne Ams, Brian Olden, Greg Horman, Yasemin Hurcan, Guilherme Pedras, Michael Papaioannou, Eriko Togo, Christian Ebeke, Masha Iyabo, Mehmet Cangul, Friska Parulian, Albert Touna Mama, Edgardo Ruggiero, Sam Mensah, and Zeine Zeidane, for their insightful comments and suggestions, and to Desiree Amon for editorial assistance. Any errors or omissions remain the author’s.

2

Existing literature suggests that banking crises often precede or accompany sovereign debt crises. Moreover, public debt levels accelerate markedly and systematically ahead of a sovereign debt crisis with often previously “hidden debt” surfacing as crises unfold—See Reinhart C., and K. Rogoff “From Financial Crash to Debt Crisis” 2010.

3

See IMF and World Bank Revised Guidelines for Public Debt Management, April 2014.

4

IMF and World Bank’s Revised Guidelines for Public Debt Management, April 2014. See also IMF “Government Financial Statistics Manual” (GSFM) 2014; IMF “Public Sector Debt Statistics: Guide for Compilers and Users” 2011 and 2013.

6

Olden Brian and John Gardner “Cash Management and Debt Management: Two Sides of the Same Coin?” in Public Financial Management and its Emerging Architecture, Eds Marco Cangiano, Teresa Curristine, and Michel Lazare, IMF 2013.

7

This may include the Civil Code in some jurisdictions, the law of contract, commercial, trust, and securities laws, among others.

8

These may include the terms and conditions for Government debt documented in loan agreements, bond indentures, prospectuses, and other issuing documents; derivatives contracts, agency agreements, among others.

9

For an exposé on private law aspects of public debt securities- a subset of public debt- see Bossu W., and Addo Awadzi E., “Private Law Underpinnings of Public Debt Securities Markets,” Uniform Law Review, 2013 Vol. 18, 2013, 564–588, Oxford Journals/Oxford University Press.

11

Examples include the EU’s Treaty of Maastricht, and the Stability and Growth Pact (SGP); and treaties of the Eastern Caribbean Currency Union, the West African Economic and Monetary Union, and the Central African Economic and Monetary Union.

12

E.g. a number of EU member states have enacted Stability Pact legislation adopting the EU SGP.

13

Some of these (e.g. guidelines or circulars) may not be legally enforceable instruments, depending on local law and practice.

14

By virtue however of the Austrian Stability Pact, each level of Government is required to coordinate its budget including through the surveillance of the development of budgets, public deficit and public debt. See Theis Rechtsanwälte GmbH & Co KG “The Wolf Theiss Guide to: Public Debt Management in Central, Eastern & Southeastern Europe” 2012.

15

Ibid. The Law on Debt, Debt Issuance and Guarantees of the Federation regulates the conditions for the creation and management of public debt by the Federation and by its lower administrative and territorial units (cantons, municipalities, cities, as well as certain public funds), while the Republika Srpska’s Law on Debt, Debt Issuance and Guarantees of sets out the rules for the creation and management of public debt within the latter.

16

Examples include Canada’s Financial Administration Act (R.S.C., 1985, c. F-11).

17

See for example, Brazil’s Fiscal Responsibility Law of 2000 as amended.

18

Examples include Sweden’s Act on State Borrowing and Debt Management of 1998, the United Kingdom’s National Loans Act of 1968, Thailand’s Public Debt Management Act of 2005 (B.E. 2548), and Turkey’s Law on Regulating Public Finance and Debt Management 2002 (Law No. 4749). Others include Ghana’s Loans Act of 1970, Jamaica’s Public Debt Management Act of 2012, Mauritius’ Public Debt Management Act of 2009 (amended through 2012), Moldova’s Organic Law No. 419 of 2006 on Public Debt, State Guarantees and State On-lending,18 Sierra Leone’s Public Debt management Act of 2011.

19

Examples are Belize, Botswana, Grenada, Lesotho, and Swaziland. In these countries, the legal framework is reflected in the Constitution, PFM laws, laws regulating public debt; specific laws governing Government securities, and others regulating borrowing from specific creditors.

20

For example, although Moldova has a dedicated PDM legislation, its scope excludes Government borrowing from the IMF and other non-resident lenders. Articles 1 (3) and 21 of Moldova’s Organic Law No. 419 on Public Debt, State Guarantees and State On-lending, provide that external borrowing by the State or the National Bank of Moldova from the International Monetary Fund and other non-resident lenders are to be governed by separate Acts of Parliament.

21

In some civil law jurisdictions such as France and Spain, the Constitution recognizes the concept of “organic law”, which in some cases may enjoy a higher legal status, next only to that of the Constitution, in terms of its supremacy and entrenched provisions.

22

For example see Tanzania’s Loans, Guarantees, and Grants Act of 1974 as amended in 2004.

23

A genuine exception to this may be in the case where Government securities are issued for monetary policy purposes, where the proceeds of such issuance are “sterilized” into a separate account which is not accessible for Government’s general expenditures.

24

For example the U.K.’s “National Loan Fund” is established under section 1 of the National Loans Act of 1968 as a Treasury account to be maintained with the Bank of England and into which loans obtained by the Government could be paid. Under section 18, any excess of liabilities of the National Loan Fund over its assets, is deemed to be a liability of the Consolidated Fund to the National Loan Fund. Also Schedule 5A of the same Act established the “Debt Management Account” whose purpose includes ensuring effective liquidity management under the National Loan Fund.

25

See Dippelsman, Robert, Dziobek Claudia, and Gutiérrez Mangas Carlos A., “What Lies Beneath: The Statistical Definition of Public Sector Debt: An Overview of the Coverage of Public Sector Debt for 61 Countries” IMF Staff Discussion Note, 2012.

26

The IMF defines “public sector” as “(…) all resident institutional units controlled directly, or indirectly by resident government units, that is, all units of the general government sector, and resident public corporations”, while the “general government sector” is defined as”…. all government units and all nonmarket nonprofit institutions (NPIs) that are controlled by government units”. “Government units” refer to institutional units with legislative, judicial, or executive authority over other institutional units within a given area; See Public Sector Debt Statistics 2011/2013 paragraphs 2.17 and 2.18.

27

See IMF and World Bank Revised Guidelines for Public Debt Management April 2014.

28

Section 6 (1) and (2).

29

Law no.419-XVI of 22.12.2006. Art. 2.

30

IMF and World Bank Public Debt Management Guidelines 2014.

31

Public Sector Debt Statistics (2011, reprinted 2013) debt definition is consistent with that in Government Financial Statistics Manual (2014).

32

It is also useful for the legal framework to clarify whether Government securities are to be issued in bearer, registered, or fully dematerialized form. See Bossu and Addo Awadzi, 2014 for details on these various forms in which Government securities could be issued.

33

For example, Mauritius’ Public Debt Management Act of 2008 includes in the definition of debt, “debt guaranteed wholly or partly by the State.”

34

“Judgment debt” is a term used in some jurisdictions to refer to claims awarded by courts or other adjudicatory bodies against a party (in this context, Government or other public sector entity).

35

Section 4 of Tanzania’s Government Loans, Guarantees and Grants Act 1974 (amended in 2003) provides that “where the Government with the approval of the Minister acquires any asset under an agreement which provides for payment for such asset to be made outside Tanzania subsequent to the date of the acquisition of the asset, the sum of money payable under such agreement shall, for the purposes of this section, be deemed to be a loan raised by the Minister outside Tanzania.”

36

Section 42 (2) provides that “Outstanding judgment debts not paid shall be considered part of the consolidated debts for the purpose of application of the respective limits set in pursuance of this section.”

37

The UK’s 2014 sovereign sukuk (200 million pounds sterling or US$ 307 million) being the first non-Muslim jurisdiction sovereign sukuk, was followed in the same year by sovereign sukuk issued by Luxemburg (200 million Euros or US$ 240 million) as the first euro zone sovereign sukuk, Hong Kong (US$ 1 billion), and South Africa (US$ 500 million).

38

Article 7/A as amended in 2013.

40

See Islamic Finance: Opportunities, Challenges, and Policy Option, IMF Staff Discussion Note, April 2015 page 27.

41

See Wedderburn-Day A. Roger, “Sovereign Sukuk: Adaptation and Innovation”, 2010, for a good expose on the legal complexities underlying Sovereign sukuk. Available at http://www.law.duke.edu/journals/lcp.

42

IMF and World Bank Revised Guidelines for Public Debt Management April 2014.

43

The IMF and World Bank Guidelines on Public debt Management support including a secondary objective of promoting the development of the domestic debt market, where appropriate.

44

See similar examples in Belize, New Zealand and the U.K.

46

See Paragraph 101 below.

47

See sections 9 (2) and 10 of Sierra Leone’s Public Debt Management Act 2011, which requires the terms and conditions of securities issued outside Sierra Leone and loans contracted from a foreign lender to be approved by Parliament. There is no requirement for the terms and conditions of domestic debt to be approved by Parliament.

48

See Panizza, Ugo; UNCTAD “Domestic and External Public Debt in Developing Countries” Discussion Paper, No. 188, March 2008. The paper reports that while the main compilers of statistical information on public debt (e.g. BIS, Eurostat, IMF, OECD, Paris Club, UNCTAD and the World Bank) rely on the residence of the creditor in defining external debt, it may be difficult to accurately estimate the stock of external debt using this definition, given that most non-resident lenders tend to hold Government debt through intermediaries. Countries therefore tend to rely on the place of issuance/governing law as the guide post.

49

U.S. Constitution, Article 1 s. 8.

50

Australian Constitution, Article 51.

51

Swaziland’s 2005 Constitution (section 204) authorizes the Government to borrow through the Minister under the authority of an Act of Parliament.

52

See Canada’s Financial Administration Act (R.S.C., 1985, c. F-11) amended as of February 2014, sections 43 (1) and 44 (1) and (3).

53

As amended in 2013, section 65ZH.

54

Article 119 of the Jamaican’s Constitution, and Article 182 of Ghana’s Constitution.

55

Section 55, emphasis added. Also, see Grenada’s Constitution (section 81 (1) and (2)) which provides that all debt charges for which Grenada is liable to be a charge on the Consolidated Fund. Debt charges are defined to include interest sinking fund charges, the repayment or amortization of debt and all expenditure in connection with the raising of loans on the security of the Consolidated Fund and the service and redemption of the debt created thereby.

56

Jamaica PDM Act Section 11 (J); Sierra Leone Public Debt Management Act 2011 –Section 3 (1).

57

See for example Government Accountability Office, Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market, GAO-11-203 (February 2011) which analyzes the challenges of managing Government cash and debt under a statutory debt ceiling.

58

See Budina Nina, Tidiane Kinda, Andrea Schaechter, and Anke Weber, “Fiscal Rules at a Glance: Country Details from a New Dataset” IMF 2013 WP/12/273. Also, Japan and Korea also have expenditure rules (ceilings) established by political commitment and internal rules OECD (2013). See “Fiscal Rules”, in Government at a Glance 2013, OECD Publishing, http://dx.doi.org/10.1787/gov_glance-2013-26-en.

59

West African Economic and Monetary Union.

60

Central African Economic and Monetary Community.

61

The Maastricht Treaty of 1992, the Stability and Growth Pact (SGP) of 1997 require EU member states to reduce their public debt-to-GDP ratios to 60 percent by 2020. The Fiscal Compact and the “six pack” also include a commitment to continuously reduce the public-debt-to GDP ratio to the 60 percent of GDP threshold. See Andrea Schaechter, Tidiane Kinda, Nina Budina, and Anke Weber, “Fiscal Rules in Response to the Crisis—Toward the “Next-Generation” Rules. A New Dataset” 2012, WP/12/187.

62

Eastern Caribbean Currency Union.

63

Hungary’s Constitution/Fundamental Law of 2012 a debt ceiling of 50 per cent of the gross domestic product of the previous year.

64

Poland has since 2004, adopted under its Constitution, a public debt/GDP ratio of 60 percent in line with the EU SGP.

65

E.g. The U.S. Congressional Budget Act of 1974, Jamaica’s Financial Administration and Audit Act, as amended.

66

E.g. Fiscal Responsibility Laws of some jurisdictions, fiscal rules (including debt rule/ceiling) may require supermajority vote of the legislature to suspend or amend. For example, Switzerland’s 2003 law requires a supermajority vote of the legislature for departure from the “balanced budget rule.”

67

See for example, section 2 of the UK’s Fiscal Responsibility Act of 2010 which empowers the Treasury to issue statutory instruments to impose rules on the Treasury related to public sector net debt or general fiscal policy and framed by reference to a financial year or financial years. The Act requires drafts of such statutory instruments to be laid before Parliament and approved by a resolution of the House of Commons.

68

The Danish debt ceiling was last raised in 2010 from Dkr950 billion to the current Dkr 2,000 billion. In practice, the ceiling is believed to be almost three times the level of actual outstanding gross debt to help avoid any potential effect of the nominal gross debt ceiling on ongoing fiscal policies in Denmark, although as a result, it appears to be of no practical relevance for government budget making or debt management. See Jacob Funk Kirkegaard, “Can a Debt Ceiling Be Sensible?—The Case of Denmark” Peterson Institute for International Economics, July 26th, 2011, available at http://blogs.piie.com/realtime/?p=2280.

69

The U.S. debt ceiling was first enacted during World War I to eliminate the need for Congress to approve each new debt issuance and provide Treasury with greater discretion over how it finances the government’s day-to-day borrowing needs. The ceiling has increased from roughly $43 billion in 1940 to more than $17.2 trillion in 2014. Pursuant to Temporary Debt Limit Extension Act of 2014, Congress suspended the ceiling in February 2014 until March 15, 2015, after which the ceiling is expected to be increased.

70

The ceiling was originally established under section 5 of the Commonwealth Inscribed Stock Act 1911.

71

E.g. Many countries pre-finance their borrowing requirement (which may require borrowing in a previous fiscal year to finance a portion of the following years borrowing needs) when market conditions are deemed favorable to ensure that they have adequate liquidity in the event of a downturn in market conditions.

72

Nigeria’s Fiscal Responsibility Act of 2007 S. 42.-(1) provides for a debt limit on “consolidated debt of the Federal, State and Local Governments” including unpaid judgment debts (Section 42 (2)).

73

By way of illustration, conditionality on public debt in IMF arrangements for countries is established as a limit on “total” public debt and publicly guaranteed debt unless country circumstances and program objectives justify the use of more narrowly targeted conditionality. The limit may exclude debt of specific public enterprises or other official sector entities that are assessed by the IMF to be in a position to borrow without a guarantee of the government and whose operations pose limited fiscal risk to the government. See “Guidelines on Public Debt Conditionality in Fund Arrangements” effective June 30 2015.

74

Section 42 (2) of Nigeria’s Fiscal Responsibility Act of 2007.

75

The U.S. Treasury defines “Total Public Debt Subject to Limit” as “the Total Public Debt Outstanding less Unamortized Discount on Treasury Bills and Zero-Coupon Treasury Bonds, old debt issued prior to 1917, and old currency called United States Notes, as well as Debt held by the Federal Financing Bank and Guaranteed Debt.” By this definition, some 0.5 percent of total debt is excluded from debt limit coverage. For details, see http://www.treasurydirect.gov. and also D. Andrew Austin “The Debt Limit: History and Recent Increases,” Congressional Research Service, April 27 2015.

76

Under the now repealed Second Liberty Bond Act of 1917, the U.S. Congress imposed ceilings on specific categories of debt, which were replaced in 1939 by a single ceiling on (nearly) all public debt.

77

In some jurisdictions that permit Government borrowing from the Central Bank—so-called monetary financing—a separate ceiling may exist specifically to discourage its use. Some jurisdictions however provide for zero monetary financing of the Government. These include the EU, and the ECCU treaties.

78

In particular, the legal framework in Moldova excludes Government borrowing to finance the budget deficit from the debt ceiling although Government borrowing to recapitalize the Central Bank is covered under the ceiling. See Article (4) “Issuance of State Securities for increasing National Bank of Moldova’s statutory capital shall be treated as state’s internal debt within the limits set in the budget law for the respective year. Issuance of State Securities for covering the debit balance of the general reserve fund of the National Bank of Moldova shall be treated as state’s internal debt over the limits set in the budget law for the respective year.

79

For example in Tanzania, the total net amount guaranteed by Government in any financial year cannot exceed the ceiling for guarantees set by Government for that year—See Government Loans, Guarantees, and Grants Act section 13A (3). Also, in addition to overall ceilings on guarantees, the legal framework sets a ceiling on the guarantee cover for each loan—see section 13A (1) (b) of Tanzania’s Government Loans, Guarantees and Grants Act which sets the guarantee cover per loan at seventy percent of the amount borrowed, although the Minister may waive this limit on the advice of the National Committee.

80

See for example, Suriname’s National Debt Act of 2002 which provides that any agreement entered into in breach of the debt ceiling or applicable rules of law is null and void.

81

See article 59 of Brazil’s Fiscal Responsibility Law (paragraph 1, subsection III), and also article 71 (subsection IV) of the 1988 Federal Constitution).

82

Article 4 of Moldova’s Organic Law # 419 on Public Debt, State Guarantees and State On-lending.

83

These debt thresholds were reduced in 2014 from 50 percent and 55 percent of GDP as a result of the changes to the pension system in Poland which affected the debt levels under the correction mechanism of the stabilizing expenditure rule.

85

See for example the Temporary Debt Limit Extension Act of 2014 (by which Congress temporarily suspended enforcement of the debt ceiling until March 15, 2014.

86

E.g. under section 88 of Ghana’s Local Government Act 1993 (Act 462) a local government authority has authority to raise local loans and overdrafts as approved “in the amounts, from the sources, in the manner, for the purposes and on the conditions approved by the Minister in consultation with the Minister responsible for Finance”, except where it does not exceed a threshold specified in the Act, or does not require a Government guarantee.

87

In respect of loans or bank overdraft of more than Rands 10,000. See Loans (Statutory Bodies) Act 1975 (Act No. 22) Section 3.

88

As amended in 2014.

89

Legal persons typically have powers to acquire and hold property, to sue and be sued, and to borrow, among other things.

90

Public Financial Management and Accountability Act 2011, s. 41, section 32.

91

For example, interesting case law recognizing this principle can be found in the ruling of the Brussels Tribunal of First Instance (Banque de la Republique du Burundi vs. Goetz et al 19 July 2001). The Tribunal ruled that by virtue of the Central Bank of Burundi’s separate legal personality, it could not be held liable for the outstanding debt of the Government of Burundi. Consequently, its assets held with the Belgian Central Bank could not be attached to defray the Burundi Government’s debt obligations to its creditors.

92

For example, in the 2013 “Chapter 9” bankruptcy filing of Detroit resulting largely from difficulties in meeting unfunded pension liabilities and health insurance benefits, the U.S. federal government offered U.S. $300 million in combined federal and private aid to help recovery of Detroit’s economy.

93

There is currently some speculation whether the Austrian government will assume guarantees issued by the financially-distressed southern Austrian province of Carinthia, in respect of bonds issued by Heta Asset Resolution AG (set up in 2014 by the Austrian authorities to take over assets of the failed Austrian bank Hypo-Alpe-Adria). The Austrian government has meanwhile made public statements to the effect that it will not assume liability for Carinthia’s guarantees. http://www.bloomberg.com/news/articles/2015-03-10/carinthia-prepares-for-insolvency-seeks-credit-through-treasury.

94

Its mandate is to provide the European Union with statistics at the European level that enable comparisons between countries and regions and help assess compliance by EU member states with their treaty obligations.

95

See Eurostat’s letter of February 2011 on the subject “Methodological treatment of the debt of the Austrian Railway Company ÖBB), which also referred to similar decisions in earlier cases in France, Italy, Romania, and Slovakia, in relation to railway corporation debts. In respect of Austria’s OBB, Eurostat held the view that the Austrian Government was liable for debt contracted by the Austrian railway corporation – ÖBB, subsidiary of the Government-owned ÖBB Holding AG. In reaching its opinion, Eurostat considered a number of key factors including the fact that the Federal Government was responsible for providing regular subsidies to ÖBB to cover debt service payments for 70 percent of its debt, as a result of which the former could be deemed to be indirectly responsible for the debts of the latter http://ec.europa.eu/eurostat/web/government-finance-statistics/methodology/advice-to-member-states.

97

See Ahmad, Albino-War, and Raju Singh “Sub-national Public Financial Management: Institutions and Macroeconomic Considerations” IMF Working Paper 2005 WP/05/108.

98

Some modifications may be required as far as certain public sector bodies are concerned. For example, particular care needs to be taken where Central Banks are concerned, to ensure that their ability to borrow for monetary policy purposes is not unduly constrained by any controls on public sector entities.

99

See Article 11 of Belgium’s organic law of the National Bank of Belgium.

100

Public Finance Management Act 1999 as amended, Section 67.

101

Public Finance Management Act 1999 as amended, Section 66.

102

Examples include Austria, Belgium, and Denmark. For a full discussion, see Ahmad, Albino-War, and Singh “Sub-national Public Financial Management: Institutions and Macroeconomic Considerations” IMF Working Paper 2005 WP/05/108.

103

See Klomega v. Attorney General and others (Supreme Court of Ghana, 2013) where the court held that a concession agreement entered into between the Ghana Ports and Highways Authority and a foreign counterparty did not require parliamentary approval under article 181 (5) of the 1992 Constitution which required parliamentary approval of all international economic agreements entered into by “Government.” In interpreting that provision, the Supreme Court reasoned that subjecting statutory corporations with commercial functions to the parliamentary approval process would increase the weight of Parliament’s responsibilities to an unsustainable level in a way that could not have been intended by the drafters of the Constitution.

104

Ibid, page 17.

105

For more on contingent liabilities, see Aliona Cebotari, “Contingent Liabilities: Issues and Practice” IMF Working Paper 2008 WP/08/245.

106

In some jurisdictions, contingent liabilities are created by statute. These may include provisions in legislation establishing deposit insurance schemes, pension and social security schemes, that require Government to make certain payments in the event of deficiency of such schemes.

107

For more on contingent liabilities, see Aliona Cebotari, “Contingent Liabilities: Issues and Practice” IMF Working Paper 2008 WP/08/245.

108

See Australia’s Financial Management Guidance No. 6, “Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort,” September 2003 that provides for edibility for these instruments, reporting and disclosure, and risk management.

109

Indemnities are guarantees to compensate a party for losses incurred.

110

Comfort letters and “no objections” from Government may express government’s support of an activity or transaction, short of explicitly guaranteeing a third party’s obligation or other undertaking. Depending on its framing, however their legal status and effect may be unclear, and it is important for the legal framework to clarify this.

111

Section 8 (1) of the 2008 PDM Act.

112

Loans and Guarantees Act 1976 as amended, section 6.

113

Section 58 (1). Under 58 (2), in the case of a private borrower, sufficient security for the loan is required.

114

Organic Law No. 419, on Public Debt, State Guarantees and State On-lending, Article 27.

115

Tanzania’s Government Loans, Guarantees, and Grants Act section 13A (1) (a).

116

Oesterreichische Kontrollbank AG.

117

Section 41 (3).

118

Section 41 (3).

119

See Cebotari 2008; Lienert, Ian and Moo-Kyung Jung (2004); and OECD, 2007 which assert that about half of the OECD countries require parliamentary approval of loan guarantees (including Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Poland, Spain, Sweden, U.K., U.S.).

120

Article 31 of Law 419.

121

Generally, the main risks faced by public debt portfolios relate to market risk, which includes interest rate risk and exchange rate risk, refinancing risk, liquidity risk, credit risk, and operational risk. See IMF/World Bank Revised Guidelines for Public Debt Management 2014 (Paragraph 5 “Risk Management Framework.”

122

Ibid.

123

Ibid.

124

E.g. provisions on advances by Government.

125

Austria’s Federal Financing Act (Bundesfinanzierungsgesetz) requires the authorization of the federal legislator.

126

In addition to Act No. 190/2004 which regulated Government bonds, each specific issue of government bonds is further regulated in detail either by a specific act on a State bond program or by a specific act which empowers the Ministry of Finance to issue government bonds. See Theis Rechtsanwälte GmbH & Co KG “The Wolf Theiss Guide to: Public Debt Management in Central, Eastern & Southeastern Europe” 2012.

127

Ghana’s Constitution (Article 181 (4)) requires that “the terms and conditions of a loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament.”

128

Moldova’s Organic Law No. 419 of 2006 on Public Debt, State Guarantees and State On-lending, Article 7.

129

For example Bosnia, where all loans obtained from foreign lenders and denominated in foreign currency require prior parliamentary approval. See Bosnia Law on Debt, Debt Issuance and Guarantees of the Federation, 2005, Official Gazette of BiH No. 52/05. Also Ghana, where Article 181 (5) requires all international business or economic transactions involving the Government to be approved by Parliament.

130

Article 181 (3).

131

Redemption of Government bonds/borrowing is also required to be approved by the Diet.

132

See Theis Rechtsanwälte GmbH & Co KG “The Wolf Theiss Guide to: Public Debt Management in Central, Eastern & Southeastern Europe” 2013, who also explain that although, the term “international agreement” has not been expressly defined in Albanian law, in practice this term is invoked in relation to all agreements between Albania and foreign entities.

133

In Bosnia, each individual transaction negotiated by the State Ministry of Finance and Treasury has to be approved by the Council of Ministers of the federation, on the basis of a proposal submitted by the Ministry. Bosnia’s BiH Debt Law.

134

Under Ghana’s Loans Act (sections 1 and 3), Cabinet is required to approve any agreement for domestic and external loans.

135

Olden Brian and John Gardner “Cash Management and Debt Management: Two Sides of the Same Coin?” in Public Financial Management and its Emerging Architecture, Eds Marco Cangiano, Teresa Curristine, and Michel Lazare, IMF 2013.

136

See examples in Austria, Belgium, Cyprus, Finland, Germany, Hungary, Ireland, Kenya, New Zealand, Portugal, Sierra Leone, Sweden, and the United Kingdom. For an expose on the legal framework for an autonomous debt management office, see Magnusson, Tomas (1999) “Legal Arrangements for a Debt Office. Swedish National Debt Office” available at: http://treasury.worldbank.org/bdm/pdf/Legal_Arrangements_for_Debt_Office_TM_1999.pdf

137

Central Bank of Lesotho Act of 2000, (section 7 (1) (m)).

138

Section 59 of Bank of Botswana Act 1996 “Prior to any borrowing from a source other than the Bank, Government and every statutory or wholly-owned Government corporation, Government controlled corporation or local authority shall seek the advice of the Bank concerning the timing, terms and conditions of such borrowing and shall promptly notify the Bank of the terms and conditions of any such borrowing subsequently entered into: Provided that the Minister may prescribe minimum amounts below which such borrowers shall not be required to seek the advice of the Bank to proposed borrowings in Pula.”

139

Section 43.

140

A good example of this is the “Agreement between the Ministry of Finance and Central Bank of Iceland on Treasury debt management” dated September 207, available at http://eng.fjarmalaraduneyti.is/media/finances/Agreement_between_MoF_and_CBoI.pdf.

141

In some jurisdictions, this agreement is also used to provide more broadly for the terms and conditions under which the Central Bank will act as banker and lender to Government.

142

See ruling of the Brussels Tribunal of First Example (Banque de la Republique du Burundi vs. Goetz et al (supra).

143

For example, Mauritius’ PDM Act of 2008 section 9 (3) and (5) requires the MOF to make the MTDS public no later than a month after the end of every quarter.

144

E.g. Mauritius PDM Act of 2008 (s. 9 (4)) requires the MOF to prepare (no later than one month after the end of every quarter) a report on details of the outstanding public debt stock, and make it public. Sierra Leone’s PDM Act of 2011 (s. 21) requires submission to Parliament annually (no later than three months after the end of the financial year), a report on details of the outstanding public debt stock. Also Lesotho’s Public Finance Management and Accountability Act (section 37) requires the Minister to report on public debt annually to Parliament along with the submission of the annual budget. Details to be reported include the stock of public sector debt (including statutory bodies and SOEs), and in particular, the size and currency composition, interest rate mix and the maturity profile, contingent liabilities, and lending by Government.

145

Examples include Brazil where the Federal Court of Audit is mandated by law to audit the management of federal public debt and to report to the National Congress, on the extent of compliance with requirements of the legal framework (See article 59 of Brazil’s Fiscal Responsibility Law (paragraph 1, subsection III), and also article 71 (subsection IV) of the 1988 Federal Constitution).

146

E.g. the so-called “corrective arm” of the EU’s SGP.

147

The ECCU has no enforcement mechanisms in place currently for non-compliance with its Debt/GDP ratio of 60 percent by 2020.

148

See UN Economic Commission for Africa, “Towards a common currency in the East African Community”, 2012, page 24.

149

Article 5 (2) of the National Debt Act 2002 provides that “Without prejudice to the provisions Article 25(1) and (2), the Minister will directly liable for exceeding any Debt Ceiling contravention of this Act, even if his term office has ended.” Also under Article 9 (3) “When the State initiates any legal proceedings as referred to in this Article, the State may claim that the party responsible for the creation of the debt obligations or guarantee commitments be held personally liable for the obligations created.”

150

Federal law no 10,028 of 2000.

151

National Debt Act 2002 Article 25.

152

Section 196 (4) and (6).

153

Article 33 S.1 of the Fiscal responsibility Law 2000.

154

Article 9 (11) on “Voidability of obligations” empowers the State to nullify any unauthorized monetary debt obligations or guarantee commitments created at the State’s expense and of any juristic acts (performed in order to create those obligations.”

155

Section 45 (2) provides that “Lending by banks and financial institutions in contravention of this Part shall be unlawful.”

156

See Magnusson, Tomas (1999) Legal Arrangements for a Debt Office. “Swedish National Debt Office” Available at http://treasury.worldbank.org/bdm/pdf/Legal_Arrangements_for_Debt_Office_TM_1999.pdf

157

Article 7 (1).

158

See section 27 of Tanzania’s Governments Loans, Guarantees and Grants Act, 1974 amended as of 2003. Emphasis added.

159

Supplementary law 101, of May 4, 2000, Article 33.

Designing Legal Frameworks for Public Debt Management
Author: Elsie Addo Awadzi