A. Defining Investor Relations in a Sovereign Context

In order to be able to situate IR in a sovereign debt management context it is necessary to define formally ‘sovereign IR’. A reframing of the US-based National Investor Relations Institute’s (NIRI) definition of IR is a useful starting point. NIRI defines IR as “a strategic management responsibility that integrates finance, communication, marketing, and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.” It is relatively straightforward to restate this definition in the context of a sovereign as: “A strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a sovereign, the financial community, and other constituencies, which ultimately contributes to a country’s debt securities achieving fair valuation.”

Likewise, in the context of corporate investor relations, Guimard (2008) posits ‘seven keys to successful IR’, which we will demonstrate are equally applicable in a sovereign context. These are: clearly defined goals, commitment of management, organizational efficiency, quality information systems, understanding of and compliance with legal obligations, and an ability to anticipate future changes in financial communications.

In essence, IR seeks to achieve a strong form of the Efficient Market Hypothesis (EMH). As Fama (1970:383) argues, “a market in which prices always ‘fully reflect’ available information is called ‘efficient’.” Fama defines varying degrees of efficiency (strong, semi-strong and weak) and the practice of IR seeks to push towards strong-form efficiency where all relevant information is available to all market participants and is incorporated into the price of a security.

Defining sovereign IR in this manner makes IR activities consistent with the standard objective for public debt management. As expressed in the Revised Guidelines for Public Debt Management (IMF-World Bank, 2014), the “main objective of public debt management is to ensure that the government’s financing needs and its payment obligations are met at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk.” Improving communication, with an end-goal of securing effective pricing for government securities and minimizing any uncertainty premium in government bond yields, clearly establishes IR in the context of the debt management objective and the derived policy principles of predictability, transparency and openness that are aimed at ensuring a sovereign can borrow at the lowest possible cost subject to risk (Wheeler, 2004). Sovereign IR should enable investors to develop a better understanding of the authorities’ economic policies, debt management objectives and borrowing activities and in time, allow investors to develop an understanding of their reaction function.

In terms of the quantitative benefits of sovereign IR, the academic literature to date has been focused on the benefits of transparency in the context of reducing borrowing costs and broadening the investor base. For example, Gelos and Wei (2005) find a preference for international funds to invest in more transparent markets, while others such as Bernoth and Wolff (2008) and Kemoe and Zhan (2018) find that improved fiscal transparency leads to lower borrowing costs.

In addition to facilitating cost-effective borrowing, sovereign IR can also deliver benefits to the economy more widely. As investors become more familiar with the macroeconomic picture of an economy through their investment in the sovereign, with increased coverage from credit analysts at investment banks and at rating agencies, the increased transparency can generate positive spillover effects for investment in the real sector. This can manifest itself through greater market access for corporates, as well as through potential foreign direct investment (FDI).

With a focus on two-way communication, market intelligence gathered from IR is invaluable in setting a medium-term debt management strategy. Borrowing is most cost effective when there is an alignment between the supply and demand for government securities. By enabling a two-way dialogue between investors and government, a well-designed and implemented IRP can act as an effective feedback mechanism to enable a sovereign to improve the design of its medium-term debt management strategy and its cost-risk tradeoff in debt management.

B. Core Principles for Effective Sovereign IR

Effective IR requires policymakers to ascribe to a set of core principles. In analyzing sovereign IR, IMF (2004) summarizes these as openness and transparency, availability and accessibility, timeliness, consistency and honesty, and avoidance of surprises. These IR principles have a high degree of equivalence with those underpinning modern sovereign debt management strategy, particularly openness, transparency and consistency (or predictability), which are all part of the debt manager’s lexicon.

These principles focus on the provision of information by the government and the way in which it acts. Transparency and openness focus on the publication of information and channels of communication with external parties, while predictability and consistency set out the manner in which a government should act in order for stakeholders to develop an understanding and expectation of future behavior—that is, they can develop an understanding of, and anticipate, the way in which a government might react to external events.

While a government may choose to publish only that information it considers relevant, IR is most effective where there is a general commitment to transparency across government. Operating on a presumption in favor of transparency means the effective publication of all government documents and data; a document is only classified for official use if its disclosure would not be in the public interest.⁴ Such an approach supports the sharing of information across government, which is key to delivering effective IR. However, openness extends beyond access to information: it includes access to officials and encouraging an open dialogue between them and external stakeholders.

It is important to recognize that IR is not a sole panacea for addressing corruption through opaque borrowing practices. While IR has an important role in improving transparency in debt management, it is important to note its limitations where concerted efforts are made to undertake and hide borrowing. In this instance, improving governance by strengthening the legal and institutional basis for debt management, including establishing a sole borrowing authority, is critical. In addition, a government should have sufficient legal resources available to be able take appropriate advice when entering into any borrowing transaction, and where possible avoid signing contracts containing non-disclosure agreements (NDAs).

An effective IR strategy is built upon a two-way dialogue between government and external stakeholders. Given its focus on communication, IR emphasizes the importance of a two-way conversation with market participants. A government can be highly transparent and have a well-maintained debt management website, publish its debt management strategy, annual borrowing plan and various bulletins, reports and data, but this is purely passive. To maximize the benefits of IR a government has to be proactive. It can do so by providing further explanation and responding to queries (for example in meetings, conferences, by telephone and email), but more actively through formal and informal consultation. Moving from explanation to consultation enables a government to refine its debt management policies in the light of additional information.

Underpinning transparency and openness are the principles of consistency, predictability and accuracy. When communicating with stakeholders a government needs to be consistent; in responding to market events, predictable; in publishing information, accurate and timely. In general, a government needs to be viewed as a reliable counterparty and to make available accurate information on a timely basis in order for investors to make investment decisions. For the purposes of pricing securities, an investor needs to be able to rely on information that it gathers on an economy in its analysis and forecast of future macroeconomic variables to determine its views on the fair value of government securities.

In repurposing the NIRI definition of IR for sovereigns, we have retained within the definition of sovereign IR the notion of “securities law compliance”. This is not uncontroversial, because government debt managers are often not regulated or regulated differently to the rest of the financial market (e.g., self-regulated). However, DMOs operate in regulated financial markets and often issue securities whose documentation has to comply with regulatory requirements: either domestic bonds in the sovereign’s own jurisdiction or Eurobonds which are subject to the rules of the markets in which securities are sold.⁵

More generally, a DMO should seek to abide by the financial conduct rules that apply to private investors within its jurisdiction. In the context of IR, information on a government’s debt management strategy and issuance plans are material nonpublic information until they are published. Such information should be released in a controlled manner and simultaneously, to ensure that individual market participants are not able to transact ahead of others on the basis of their newly acquired knowledge. In addition to the market conduct and regulatory issues such behavior creates, releasing information to one or more parties ahead of others creates uncertainty among market participants, which undermines the price formation process, as investors price in an uncertainty premium to the issuer’s detriment.

In the context of being consistent and predictable, an IR strategy should be timely. A challenge for an under-resourced debt manager can be the production of information on a regular basis, such as quarterly debt bulletins and statistical reports. An investor should be able to rely on an issuer’s publication schedule, which should be designed in light of available resources and staff capacity, emphasizing the need for adequate resourcing.

In order to ensure that a DMO has credibility with investors, the information it produces must also be accurate. Ensuring accuracy in information and data published is critical for building credibility with stakeholders. To improve accuracy, policies and procedures should be established that guide the production of outputs. These procedures should focus on automating the calculation of data where possible to minimize manual errors, and the use of double entry for debt recording systems. In addition, there should be appropriate quality assurance (QA) and formal sign-off of documents and data prior to publication.

Effective audit is necessary to support ongoing accuracy in information that is recorded and published. A debt manager can put in place policies and practices (including targets) to facilitate the recording and provision of accurate data and information.⁶ However, these need to be supported by effective internal and external audit – both to ensure that procedures are being followed and to check the accuracy of the information produced.⁷

We summarize the key principles for sovereign IR as follows:

• Transparency – the publication of all information, data and decisions relevant to price formation in a suitable format.

• Accessibility – the availability of government and its officials to explain information, data and decisions, and to consult on policy and decisions as appropriate.

• Predictability – publishing information on a timely basis and engaging in a consistent pattern of behavior that enables external stakeholders to understand the government’s reaction function.

• Accuracy – producing data and information that is as accurate and comprehensive as possible, supported by procedures and processes to ensure quality.

Finally, the flow of information should be maintained even when news is negative. The release of data and information that shows that the government is in difficulty (i.e., unusual or unexpected news) may result in increased volatility in prices of government debt. However, an interruption of communication is likely to have a more detrimental effect on investors’ perceptions than clear and precise communication about adverse developments. The detrimental effect of negative news may be lessened if it is accompanied by honest explanation and the announcement of corrective measures. When market conditions deteriorate, those issuers that are proactive will distinguish themselves relative to others: a well-designed and executed IRP can help to mitigate potential financing crises and support market access during difficult periods.

C. Institutional Arrangements for IR

The primary role of an IR function is to establish and maintain active and regular contact with investors, creditors, financial intermediaries, credit rating agencies and credit research analysts. Its purpose is to keep these parties appraised of the status of the government’s economic and fiscal management, debt portfolio and future financing plans. It is therefore responsible for collecting and coordinating the publication of relevant macroeconomic and financial information, managing a contacts database for interested parties, drafting and distributing regular debt reports and marketing materials which provide a narrative around the data and information, as well as designing and maintaining an investor-focused website. IR practices are discussed in more detail in the following section.

As with the choice of institutional arrangements for debt management, institutional approaches to IRPs vary. Some issuers have chosen to establish a dedicated IRO to undertake IR activities, while others undertake IR activities using staff drawn from existing parts of the DMO. For advanced economies, IR activities have tended to grow organically out of existing debt management functions (see Dooner and McAlister, 2013), while for emerging economies with active financing programs there has been a trend to create standalone IROs, such as those in Brazil, Mexico and Turkey.

The decision to create a standalone IRO or to develop a more integrated IR function should be determined by the resources available and the anticipated scope of IR activities. The budget of a DMO will be impacted by implementing an IR strategy, subject to the scale and range of activities planned. A standalone IRO may have higher overheads if staff are not fungible with other debt management functions. Box 1 sets out how a standalone IRO might be organized and staffed. Less active and relatively small sovereigns will tend to engage investors less frequently and only at fixed times (for instance prior to issuance) and therefore may not need to establish or maintain a dedicated IRO. As a corollary however, in smaller markets, non-resident banks may not dedicate any resources to covering the government or its markets, and thus responsibility for marketing initiatives rests solely with the DMO. Nevertheless, with marked progress in data dissemination due to the internet, and improved debt reporting, this is not necessarily a pre-condition for a dedicated IRO. In essence, the scale of the IR function should align with the government’s debt portfolio and its ambitions to increase or expand its domestic and non-resident investor base.

^{Box 1.}

Organizing and Staffing an Investor Relations Office

An IRO should be based within the same department or division as those officials responsible for managing the public debt, regardless of whether debt management is managed within a ministry of finance, central bank or through an independent government agency. Close proximity between the IRO and the rest of the debt management function is necessary to facilitate co-ordination and cooperation between the two, which is essential to sustain accurate, regular and timely communication on the government’s debt management activities. The overall number of staff within the IRO is a function of the scale of the government’s overall debt portfolio, size of outstanding debt and future borrowing plans.

IROs are often headed by a senior debt manager, who may also be the head of the front office. The senior individual reports to the head of the DMO and oversees the development and implementation of the IR strategy on a daily basis, liaises with senior management contacts across government and manages interaction with external stakeholders. Figure 1 shows how an IRO might fit within a DMO’s overall institutional structure – the dashed line highlighting the potential close links and overlap with the front office.

DMO Organogram Including an IRO

Citation: IMF Working Papers 2020, 204; 10.5089/9781513556369.001.A001

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DMO Organogram Including an IRO

Citation: IMF Working Papers 2020, 204; 10.5089/9781513556369.001.A001

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DMO Organogram Including an IRO

Citation: IMF Working Papers 2020, 204; 10.5089/9781513556369.001.A001

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Production of bulletins, reports and marketing materials is typically the role of junior IRO staff. Coordination with DMO colleagues and partners across government (e.g., the central bank and national statistics office) will be necessary to gather and frame the required content for the IR publications. These interactions can be managed by junior staff, with final publication and dissemination authorized by the IRO head, after internal approvals and reviews have been conducted. The IRO head should maintain an HR plan for the IRO, to allocate roles and delegate responsibility for performing the work necessary to implement the IR strategy. Job descriptions for IR staff set out IR responsibilities, outlining individual duties within the overall strategy. Supporting cover for key IR roles are identified in advance in the HR plans, to ensure core functions are maintained while individuals are away from the office.

Both senior and junior IR staff should be in regular contact with various partners within government that provide the relevant data, information and statistics the IRO needs for its communications and publications. More active IROs have institutionalized these relationships with regularly scheduled coordination meetings.

The costs of an IRP, whether integrated or delivered through a dedicated IRO, should be a standard line item for inclusion in the DMO’s annual budget discussions with central government. Even in circumstances in which an IRP is integrated into the DMO’s day-to-day activities, it can substantially increase the workload of the DMO, requiring sufficient budget and staffing to undertake IR activities efficiently. Typical IR-related expenses include staff time dedicated to IR work, initial website design and ongoing management and maintenance, logistical arrangements for international travel for conferences and roadshows, publication and printing costs, and sometimes translation or teleconference services.

In the absence of a formal IRO, implementation and management of an IRP requires integration into the DMO’s existing work responsibilities. Job descriptions at the DMO should clearly reflect the location of functional roles across the front, middle and back office, with clear accountability for supporting the IR function. Delivering IR is a year-round process and is often lead by a senior manager in the front office, one of whose responsibilities is to oversee implementation of the IRP. IR functions can be fully integrated into the front office work, with front office team members sharing responsibility for the coordination and production of the IR reports and materials. Implementation of the IR strategy thus becomes a key responsibility for the head of the front office.

In governments with limited needs for active IR strategies, the IRO head may also be the head of the DMO and/or the front office head. Members of the front office teams spend a portion of time on IR matters, with duties being combined for the sake of efficiency. What is important is that the person(s) directly responsible for implementing the IR plan is/are well-positioned and experienced enough to do so. Job descriptions for all staff should reflect their respective assignments within the IR framework. Annual personnel performance assessment reviews should reference staff member’s execution of their specific IR duties. The size and scale of the government’s debt portfolio and borrowing activity will influence the depth and breadth of resources dedicated specifically to managing the IR strategy.

IR staff need to have the requisite skills to interact professionally with investors and financial intermediaries. Staff responsible for IR delivery will be focused on the dissemination and publication of data, forecasts and information to a range of investors. They must have a variety of skills, including: (i) strong economic and financial expertise; (ii) solid communication skills in English and the domestic language(s); and (iii) appropriate soft skills to interact professionally with a range of counterparts. In particular, IR staff will be expected to develop a personal dialogue with investors, for these discussions provide valuable insights into market sentiment.

The qualifications of staff can be a useful signalling device to market participants. Relations with investors can be supported by IR staff taking and maintaining professional finance qualifications—these can act as a useful signaling tool to external stakeholders regarding their competence. These staff then need to develop an in-depth understanding of the economic position of the country and its economic and financial priorities. Additionally, senior IR staff need to have direct access to policymakers, and an ability to speak with confidence and authority on economic, financial and debt management developments.

A challenge for IR staff is that market participants expect the DMO to communicate on a broad range of topics, several outside its traditional responsibilities. These may range from discussions on central bank monetary operations, conditions in the private financial sector, foreign exchange rate policy or trends in FDI. The DMO will need to act as the central coordinating body for data and managing the narrative on such topics. To do so efficiently, it will be important to obtain senior government approval for IR strategies. This can cement broad government accountability for the transparency and predictability required to deliver IR. Notwithstanding support from the prevailing political party in office, any narrative provided in communications should be apolitical, and enjoy broad support across government.

It is important to highlight the difference between an IR function and a press office. As IIF (2005) notes, a number of countries have considered co-mingling press and IR functions as they involve communicating with external counterparties. However, there is a clear case that the two should be kept separate because they address different audiences, produce different types of content and require different skill sets.

Ensuring the commitment and ongoing support from ministers and senior officials is critical for developing and sustaining an effective IRP. A precursor to the establishment of an IRP is high-level support from ministers and senior officials. Given the number of government agencies and policy makers involved, effective sovereign IR can only be delivered where there is collaboration and data sharing across government.

The three most important counterparts to effective sovereign IR are the Central Bank, the Ministry of Finance and the National Statistics Office. The need to present a comprehensive picture of the economy, the stance of fiscal and monetary policy, relevant statistics, as well as an understanding of the government’s debt management policy, requires the involvement of the central bank, the ministry of finance and the statistics office. IR staff need to have access to data and information generated in these institutions, while also having the ability to interact with their senior policymakers.

The provision of information relevant for international financial market participants is facilitated by a country subscribing to the IMF’s Special Data Dissemination Standard (SDDS). The SDDS (IMF, 2013) is one of the IMF’s Data Dissemination Standards and was established in 1996 to provide guidance for those countries that have, or might seek, access to the international capital markets on how to disseminate key data so that users, particularly financial market participants, have adequate information to assess the economic position of specific countries. For those countries seeking to improve their data quality and statistical systems, the enhanced General Data Dissemination System (e-GDDS) (IMF, 2015) can be a pathway to SDDS subscription. The SDDS Plus, the highest standard of data dissemination, was established in 2012. It builds on the SDDS and aims to include economies that play a leading role in international capital markets and have institutions that are interconnected. The IMF produces Annual Observance Reports of dissemination practices of every SDDS and SDDS Plus country. A number of studies, including Tiffin et. al (2003), Cady (2004), Cady and Pellechio (2006), and Choi and Hashimoto (2017) find that subscribing to the IMF’s data standards can reduce issuance spreads for EM sovereigns.

D. The Importance of Good Quality Debt Data

Comprehensive and easily accessible debt data is a precursor to effective IR. Core components of debt management publications are statistics on the country’s public debt portfolio. In the absence of well-recorded data, reporting will be inefficient and exhaust staff time that could be dedicated to other activities. To minimize time taken to gather and process information, a debt management recording system should be managed centrally, with DMO staff maintaining debt records in a single database covering all domestic and external debt, and where possible data on contingent liabilities.

In principle, the DMO should endeavor to maintain a complete record of all debt obligations of the general government, but this can be a significant challenge. In practice, most DMOs are responsible for managing central government debt, and do not have a mandate to record or monitor broader general government or public sector debt. In addition, where there is such a mandate, managing the oversight of all of the government’s liabilities may not be possible on a timely basis, especially for DMOs with limited capacity. Most demanding can be locating details for liabilities or guarantees contracted by state or local government, state-owned enterprises or contingent liabilities, as traditionally these liabilities would be negotiated by officials outside of the DMO.

When faced with this problem, often what is most reliable is a focus on central government public debt, at least initially. In so doing, the DMO is more likely to ensure it can adhere to a regular calendar of data publications in a timely manner, a factor much valued by investors. If this is the approach taken, the scope of the public debt should be clearly specified, so that the reader will understand the range for which the debt statistics relate, i.e., central government vs. general government debt. The Public Sector Debt Statistics Guide (IMF, 2011) is an invaluable resource for debt managers seeking to record and report on public debt. Credibility of debt data can be improved when the debt manager states publicly that it adheres to international standards in debt recording.

In order to go beyond reporting on central government debt, even greater co-ordination in government, including with state-owned enterprises, is necessary. Where the government engages in on-lending, or provides guarantees, to state-owned entities, it needs to develop effective mechanisms for coordinating and sharing information between the debt manager, SOEs and their parent departments. Expanding the perimeter of public-sector liabilities that are reported can entail a thorough review and analysis of general government operations, extra-budgetary funds, local governments, public agencies, as well as SOEs beyond general government (e.g., public corporations), and the central bank. This will involve engaging with most, if not all, government ministries or departments. Initially, this process is likely be a time-consuming exercise and it could take some time for a DMO to develop the expertise. However, debt reporting is likely to be greatly enhanced if the extent of the government’s indebtedness is as comprehensive as possible.⁸

The DMO should consider the accuracy and reliability of data sourced from other parts of the public sector. This should also include the dependability of those partners in delivering data in a timely manner. It may be the case that the DMO is able to produce broader statistics at a lower frequency than those on central government debt given the potential difficulties in obtaining data from other parts of the public sector on a regular basis. Where possible, the integration of data provision through government, including through an Integrated Financial Management Information System (IFMIS) can facilitate the sharing of accurate data.

The ideal end point is for the DMO’s debt recording system to include all existing debt instruments and liabilities to ensure accurate and comprehensive debt reporting is available to investors. A debt instrument is defined as a financial claim that requires payment(s) of interest and/or principal by the debtor to the creditor at a date, or dates, in the future. Components of general government debt may include items such as marketable government securities (sold either to domestic or non-resident investors, in either a local or foreign currency), bilateral or concessional loan contracts, social security or state pension programs, government liability for the debts of state and local governments, public corporations or state-owned enterprises, and any accounts payable, guarantees or contingent liabilities agreed within the broader scope of government operations. While securities and loans can be the most straightforward to record, particular care has to be taken to ensure that liabilities arising from other instruments, such as derivatives, are captured accurately in the debt recording system. Where appropriate, advice should be sought from the relevant systems provider to ensure that individual instruments are recorded appropriately.

The debt recording system should be well-suited to debt reporting. Extracting debt data from the system to prepare analytical reports should be straight-forward and not unduly time consuming. Effective debt recording and reporting can be a significant challenge in low and lower-middle countries (as noted in IMF-World Bank, 2018) and this is an area in which governments need to devote greater resources and strengthen capacity with assistance from the IFIs.

A. The Role of Primary Dealers

A Primary Dealer (PD) system can be an important conduit for communication with end-investors. PDs have several roles, one of the most important being to provide intermediation services when government securities are issued, as access to government debt sales is usually restricted if a country has a PD system. In return, the PD has a number of obligations, usually including support for the DMO’s IR initiatives, in order to facilitate informed price discovery for sales of the government’s debt securities. While performing this function, PDs are well-positioned to gather feedback and market intelligence, which educate the DMO on investor perceptions of the issuer and prevailing risk appetite. PDs should be able to respond to investor requests for information, answering questions about the issuer’s fiscal situation and funding plans, directing investors to where information may be obtained and arranging subsequent contact with the DMO where needed. In essence, PDs can extend the reach and visibility of the DMO’s IR efforts, potentially increasing the efficiency and productivity of the IR office, enabling staff to focus on the most important concerns raised by investors.

However, a narrow group of dedicated intermediaries, such as Primary Dealers, may undermine the objectivity of intelligence gathered. In less developed markets, banks acting as PDs may also be significant investors in government debt for their own account. Their feedback may be influenced by their own positions. In addition, their role as an intermediary might impair direct access for the government to investor feedback, or DMOs may get complacent by expecting PDs or brokers to be pro-active. The presence of a PD system does not obviate the need for a DMO to engage proactively and directly with end-investors. As bond markets develop, it is important for regulators to ensure proper functional segregation at banks (through the use of Chinese walls) and for DMOs to develop PD systems that create suitable accountability within the system with appropriate privileges and obligations.

PDs nevertheless have a role to play in educating investors about the issuer. DMOs should ask PDs to regularly support their marketing efforts via a range of initiatives, such as hosting one-on-one, or group, investor meetings, arranging roadshows, preparing and distributing an investor presentation, or hosting financial literacy seminars or conference calls. These are explored in greater detail below. A challenge for the DMO is demonstrating even-handedness in sharing opportunities among PDs when there are significant differences in capability among the different institutions.

In managing funding operations, DMOs can benefit greatly from open and ongoing consultations with PDs. DMOs can gather valuable intelligence on investor risk appetite from PDs through feedback provided by investors. This is a key element to help the government make better-informed decisions regarding both market-based financing operations and policy initiatives. PDs perform a critical function in gathering feedback from end-investors and channeling this back to the DMO. By providing a consolidated single point of contact for market intelligence, PDs can help the DMO by condensing and summarizing investors’ views and opinions. This increases the efficiency of developing and implementing a debt management strategy by ensuring that it takes into account underlying market conditions.

In smaller markets, without a formal primary dealer framework, more IR work is required of the DMO. This has implications for the efficiency, productivity and budget for the debt management function. In smaller markets, DMOs will need to work harder to develop and sustain relationships with key investors, and actively seek assistance from leading market counterparts in broadening the visibility of the DMO’s operations.

B. Domestic versus Non-Resident Investors

Domestic and non-resident investors are traditionally viewed as distinct audiences, but they are not homogenous. While communications with both should be consistent and provide the same information, the frequency, type and scope of contact has to be tailored to each audience. It is important to note that while the terms ‘domestic’ and ‘non-resident’ cover two overarching groupings of investors, they are heterogenous: within each set there is a diversity of investors with a variety of investment motives.

The frequency and scale of IR interaction with any part of the investor base should be a function of the government’s existing debt stock and its medium-term debt management strategy. If a government is focused on issuing domestically, then resources should be dedicated to developing, strengthening and broadening the domestic investor base. Limited resources should be allocated to international marketing efforts until such time as needed to facilitate entry to international capital markets. However, this does not mean that an issuer’s other international counterparts, such as bilateral creditors or concessional finance providers should be ignored. Those relationships must be nurtured and supported with the same level of transparency as provided to the domestic investor base, but dialogue and marketing initiatives may be on a less frequent basis.

Traditionally, domestic investors will focus more on a government’s local currency securities issued in the domestic capital market. They will learn about developments in the economy and debt management via local language sources and usually are better informed about the home economy than non-resident investors. With closer proximity to local events, domestic investors may be more experienced in riding out short-term economic or fiscal challenges or political developments.

The banking sector typically dominates the domestic investor base in developing and emerging economies. Banks will usually be the first buyers of government bonds, and will invest for liquidity purposes, including to obtain collateral that can be used with the central bank. As an economy develops, Non-bank Financial Institutions (NBFIs) grow and private pension funds, investment funds and insurance companies (including casualty and life insurance) become potential investors in government securities. Each has its own investment horizon, regulatory requirements and motives for buying and selling government debt. As an IRP develops, it can target each sector of the investor base systematically, and IR staff will have to develop a better understanding of the specific needs and requirements of each.

For a number of developing and emerging countries, non-resident investors are generally likely to focus on an issuer’s public foreign currency debt, although some will participate in the domestic bond market.⁹ At a high level, these investors are more likely to consume information about the issuer via English-language sources, have greater wariness of headline risk and regional developments, and may be more reluctant about holding investments on a long-term basis. This hesitancy often stems from a less developed understanding of trends in the government or the local or regional economy. In addition to a detailed interest in the macroeconomy, these investors are focused on topics including financial sector stability, central bank foreign exchange reserves, international balance of payments data, or the vulnerability of the domestic economy to external shocks or geo-political trends. Being offshore, this increases their reliance on online sources and international intermediaries as providers of reliable, objective and timely information on the issuer’s economic and fiscal prospects.

The types of non-resident investors participating in the issuer’s debt will vary in line with the level of development of the economy and the local currency bond market. A country is likely to first encounter non-resident investors when financing internationally in hard currency. These investors are likely to be large international fund managers with a mandate to invest in developing and emerging markets. Likewise, other types of investment funds, including global macro hedge funds may take an interest in such issuance. As a country’s local currency bond market develops, and with it the foreign exchange market and the ability to clear and settle transactions without the need for local counterparties, then the range of international investors is likely to broaden. As with domestic investors, both non-resident banks and NBFIs may seek to invest in the market as well.

Developing and expanding IR practices to facilitate the sale of securities to non-resident investors can be a valuable strategy for improving the cost and risk trade-off in debt management. Where domestic investment in government bonds is dominated by local banks with short-term investment horizons, diversifying through borrowing from non-resident investors can extend a government’s maturity profile, reducing near-term refinancing risk, albeit with greater foreign exchange risk. To facilitate international issuance over the near- to medium-term, a DMO’s IR function should reach out to non-resident investors well in advance to lay the groundwork for issuance. In addition, international financial intermediaries will also need to be educated on the credit story developed by the DMO, since they can serve as key partners in raising the visibility of the government’s credit story offshore.

When targeting international investors, authorities should aim to adopt market-based international standards in data transparency. As discussed previously, achieving international debt reporting standards for IR efforts would ensure that non-resident investors receive data and information needed for proper risk assessment, with a comparable level of transparency as found in mature markets. Private sector assessment of debt sustainability requires the availability of considerable data and information. Strengthened data disclosure would be helpful to satisfy prospectus requirements for international bond issuance.

C. The Role of Credit Rating Agencies and International Financial Institutions

A key role for IR staff is actively managing the relationship with Credit Ratings Agencies (CRAs). As an independent third-party opinion and analysis of a sovereign’s credit-worthiness, understanding a sovereign’s credit rating may be the first step that a non-resident investor takes in evaluating an economy and deciding whether to invest in the government’s securities. It is therefore important that IR staff are actively engaged and participate in CRA visits. They should have a good understanding of the processes and procedures that go into the formation of a credit rating and work proactively with CRAs to address their areas of concern, or correct potential misunderstandings that would otherwise feed into their analysis.

The IR function should ensure that the CRA are able to conduct their due diligence as efficiently as possible. IR staff should ensure that the narrative and underlying key economic, fiscal and financial statistics shared with CRAs are consistent with data, information and narrative made public to other stakeholders, such as debt investors. Ensuring consistency and impartial disclosure of information on the country is an important principle for gaining and maintaining credibility. While republishing a CRA’s opinions or reports may not be feasible due to copyright, IR staff should have a good understanding of the content of any CRA publication and should be able to respond accurately to related queries from investors.

For those countries without a credit rating, or with minimal coverage by international financial institutions, Article IV consultations undertaken by the IMF can provide valuable information on macroeconomic and debt developments. As part of the range of documents available on a country’s economy, investors will look to the Staff Report produced during the consultation, including Debt Sustainability Analysis (DSA) to form a view on the country’s economy and whether or not to become a creditor to the government. Authorizing publication of the Staff Report can therefore be an important way to improve understanding of the economy by non-resident investors. As with subscription to data standards such as SDDS, publication of Article IV reports has been shown to be a contribute to lower borrowing costs (e.g. Glennerster and Shin (2003)).

D. Parliament, Public and the Press

An effective IRP can promote fiscal accountability and transparency in debt management. As Awadzi (2015) notes, reporting and public disclosure on debt management should be underpinned by the country’s legal framework, with the size of public debt and contingent liabilities reported on and performance of the government’s debt strategy monitored and evaluated. ¹⁰ While IR is primarily targeted at investors, it can enable and support a government in fulfilling its broader legal requirements around the disclosure of its debt management and borrowing activities to its legislature and the public.

For those countries with retail debt programs, the IRP should also cover the general public. If a retail debt program is the responsibility of the debt manager (and not a separate agency or department), then the IRP should incorporate the development and publication of relevant material for these investors. However, it is important to distinguish between the government’s role in providing information on any retail products that it offers to the public and the broader responsibility for financial literacy in the country, which is not the role of the IRO.

As a conduit between the government and the public, the financial and non-specialist press can be a key counterpart for IR professionals, and require them to liaise appropriately with government press officers. IR staff typically deal with investors focused on a country’s economic and financial performance and policies, while government press officers usually discuss issues with journalists on political developments or macro policy debates that do not require detailed knowledge of economics or financial markets. However, when government policies are announced that have a potential impact on debt management and financial market issues, IR specialists in the DMO can collaborate with and support the work of the press office in ensuring that any new developments and policies are explained properly to the press to facilitate accurate and factual reporting.

An IRO should also seek to establish and maintain day-to-day relations with information and data vendors. To facilitate the effective dissemination of debt-related announcements and to ensure the accuracy of information on a country’s debt instruments, it is useful for an IRO to develop contacts with data vendors (such as Bloomberg and Reuters). While such platforms can capture outright issuance effectively, direct provision of information can ensure that more complicated liability management actions are reflected, including debt buy-backs and switches.

A. A Formal IR Strategy and Communications Plan

An IRP is best undertaken in the context of a formal IR strategy. The objective of the strategy should be to position the DMO’s IRP as the government’s primary vehicle for the provision of information to investors and other key stakeholders. Developing a strategy should be a collaborative undertaking by the IR function, other parts of the DMO, and relevant government stakeholders (particularly those that will be providing relevant data), taking into account the nature of information valued by investors and external stakeholders. In essence, in preparing the strategy, debt managers should focus on providing relevant data and information to enable investors to make sound investment decisions, price securities effectively and provide reassurance that lending to the sovereign is a safe proposition.

The strategy should be reviewed on a regular basis and can be delivered through a communications plan with a published publication timetable. As a country’s underlying macro-economic performance and future policies are constantly evolving, the IR strategy needs to be kept under constant review and revised in the event of major developments. The strategy can be supported by a communications plan which summarizes how the IR function will communicate with investors and the publications and data it will produce, which in turn can be published as a timetable of the publication of information.

B. Managing Contact Information

To enable a DMO to communicate with its investors it needs to have a means and adequate processes to maintain information on investor contacts, which should be updated on a continuous basis. A ‘database’ of investor contact details serves as a foundation for communication with the market and for the distribution of publications, press releases and reports. Contact details are typically recorded within spreadsheets, although they can be better managed in a suitably designed database. The standard fields for each entry would normally include name, title, company, email and postal address, and telephone number, and ideally one or more additional fields that allows the IR function to record specific information on the contact, such as prior history of investing in the government’s securities and the date that the DMO last interacted with an individual or organization.

At a minimum, a contact list should include as much information as is available on current domestic and non-resident investors. The basic coverage of an IR contact list is those domestic and non-resident investors that already participate in the country’s debt issuance. In addition, it should also record the details for potential investors met during roadshows, industry conferences or educational seminars. The database may also be used to track and plan pro-active relationship management initiatives, to sustain an investor’s understanding of and appreciation for the country’s credit. Thereafter the contact list can be expanded to cover those financial institutions with coverage of the country’s region or market segment (e.g. EM), as well as relevant contacts in the financial press. The contact list can be supplemented by enabling individuals and companies to add themselves through a suitable electronic form on the relevant debt management website.

A more sophisticated approach to managing contacts would take a Customer Relationship Management (CRM) approach. In the same way in which sovereign IR has been borrowed from corporate finance, the use of CRM theory, processes and software may offer significant benefits, particularly for active borrowers with large outstanding debt portfolios who need to manage relationships with a high number of counterparties. While developing and implementing a CRM software solution may be costly and time consuming, to the extent that it can automate and track contact with individuals and organizations, it may offer significant long-term efficiency benefits.

Underpinning any approach to the storage and management of contacts is compliance with personal data management regulations. Any database that stores personal information must be designed to comply with relevant regulations (e.g., the General Data Protection Regulation (GDPR) in Europe) and staff should be trained to handle personal data in an appropriate manner.

C. Means of Communication and Information Dissemination

An IR strategy should use all means of communication available to convey data and information and conduct dialogue with investors as seamlessly as possible. The advent of the internet and email has made it possible for a DMO to distribute information on a low-cost basis. As such, a debt manager should use email and a dedicated website to share information relevant to debt management. Delivery via email complements the information available on the website, as the electronic delivery of such information involves a pro-active action by the debt managers, rather than waiting for investors to visit the DMO website. Any such publications sent out electronically must also be readily available on the website and accessible at a later date. Given new developments in information technology, consideration should be given to the manner in which a government’s investors seek to access relevant information. For example, some DMOs in the Eastern Caribbean Currency Union (ECCU)¹¹ post debt management updates on the social media pages of the finance ministry, to engage a local audience more reliant on social media for government news and information.

DMOs should also engage directly with investors in person. This can be through bilateral meetings, road shows, conference calls and educational seminars, as well as through participation in industry conferences (as speakers, as well as attendees). These methods of communication are considered in turn. IR staff should be trained appropriately to interact with market participants and assistance from a government’s Information Service or Public Relations professionals may provide valuable cross-fertilization of skills and experience.

D. Debt Management Publications

Debt managers produce a range of publications and reports, and it is important to recognize the value of each for end-investors. Every document or report published is a potential opportunity to market the sovereign to investors. Publications should be organized and presented in a manner that investors will find easy to use and intelligible. Reports should be accompanied by some narrative, for example describing the current level of public debt and discussing cost and risk dynamics within some historical context or providing forward-looking statements on potential changes in the debt portfolio. In general, the IR function should look to move from the standard approach of government reporting, where statistics are reported ‘as is’ without narrative, to a ‘story’ created around the countries’ developments and prospects, in order to engage with sophisticated investors. Publications should be released in the local language and English simultaneously, so that the domestic investor base does not gain an unfair advantage over non-resident investors.

At a basic level, all publications should be highly reliable, non-partisan and provided on a regular and timely basis. An IR strategy needs to ensure the data and information published is accurate, reliable, up-to-date and presented in an understandable way. Debt bulletins and debt management reports will benefit from providing a brief, objective explanation of the published data, yet (as noted in IMF, 2004) should avoid bland generalities and overoptimistic assessments. The narrative provided has to be factually correct and avoid creating distortions. Many DMOs update debt management reports and investor presentations just after the government’s annual budget cycle is approved and published, so that the most-recently agreed economic policies and fiscal plans can achieve broader visibility.

The frequency of publishing various documents and reports varies with the nature of the underlying data and narrative. At a minimum, domestic and non-resident investors expect regular updates on a government’s economic, fiscal, and debt management operations. Not all of these topics are covered in debt bulletins published quarterly, and debt management reports published annually. The table below summarizes the core debt management publications and their typical frequency of publication.

Table 1.

Key Debt Management Publications

Table 1.

Key Debt Management Publications

Publication	Frequency
Debt Management Strategy	Annual
Annual Borrowing Plan	Annual
Debt Management Report	Annual
Investor Presentation	Annually/Semi-Annual/Quarterly
Issuance Calendar	Quarterly/Monthly
Debt Statistics Bulletin	Quarterly
Operational Documents	Static – updated as required
Prospectuses	In advance of issuance
Issuance Results	Directly after issuance

View Table

Table 1.

Key Debt Management Publications

Publication	Frequency
Debt Management Strategy	Annual
Annual Borrowing Plan	Annual
Debt Management Report	Annual
Investor Presentation	Annually/Semi-Annual/Quarterly
Issuance Calendar	Quarterly/Monthly
Debt Statistics Bulletin	Quarterly
Operational Documents	Static – updated as required
Prospectuses	In advance of issuance
Issuance Results	Directly after issuance

In addition to overseeing publications for an external audience, IR staff can facilitate the provision of management information for senior management. The techniques, data and information used to present to external stakeholders can be applied in the development and provision of internal management reports to improve the policy formulation process.

E. Self-Assessment and IIF Evaluation of Investor Relations Practices

To ensure that the IR strategy is working properly, it should be subject to a periodic evaluation. This can entail benchmarking the IR activities against selected performance criteria—such as the number of new investors participating in debt offerings, the number of new investors met during the time period or the number of requests for data and information—against previous experience and the best practices of other DMOs. Periodic investor surveys requesting feedback on the IR strategy and marketing initiatives can also be useful.

The IIF also undertakes a regular evaluation of sovereign IR and data dissemination practices. A yearly assessment is undertaken, according to 20 criteria for IR (see Annex II) and 23 for data dissemination. The IIF has developed an index framework that allows market participants to better evaluate efforts by authorities to communicate with investors. A weighting system reflects the relative importance of different criteria from an investor perspective. A country’s performance is measured against the index, with the summation of the investor relations and data dissemination practices scores on a prioritized basis. A yearly assessment is undertaken, across the two main categories.

The IIF also provides updates to its assessments of investor relations and data transparency and reports innovations in terms of investor relations and data transparency practices in real time through its website. Through periodic updates of its assessments, key borrowing countries are provided a unique opportunity to convey to market participants the efforts that they are making to strengthen their dialogue with investors relative to other countries.

F. The Role of IR in Periods of Distress

IR can offer particular benefits to a government during times of distress. An investor that has a well-established relationship with a government that is open, transparent and communicative, may have a better understanding of its policy reaction function, and be less likely to make knee-jerk investment decisions when a government is faced with difficult economic circumstances, or a financial crisis. To that extent, IR has a role to play in making investors more ‘sticky’ and help to manage the risk (or slow the flow) of capital outflows in times of crisis. This in turn may help to reduce volatility of funding costs in difficult times and help a government to maintain market access (Box 3 below presents the example of how Indonesia used IR in its response to the Covid-19 pandemic). However, this may not hold when circumstances become particularly difficult, or there is a major crisis, particularly one that results in a major credit rating downgrade of the country from investment to sub-investment grade.¹²

Nevertheless, IR has a critical role to play in helping a government to re-establish market access. When a government has lost access to funding sources, for whatever reason, it has to re-establish relationships with investors in order to begin to finance again. The Euro area crisis demonstrated the significant benefits of IR in re-establishing market access, and case studies of Ireland, Portugal and Cyprus are set out in Annex III drawing on their experiences.

In the event a country has chosen to restructure its debt, IR has a particular role to play. When a country has determined that its debt is no longer sustainable and its only option is to default, the transparency provided by IR is critical in enabling a country’s creditors to evaluate the potential impact of the restructuring on their holdings and to facilitate good faith negotiations on a timely basis.