• Reference: P-MU-KA0-002
• Approval date: 09/12/2010
• Start date: 15/04/2011
• Appraisal Date: 30/11/2010
• Status: OngoingOnGo
• Implementing Agency: GOVERNMENT OF MAURITIUS MINISTRY OF FINANCE
• Location: Port louis

Component 1: Support to Improve the Debt Management Framework

The project will provide two-year technical assistance through the hiring of a Resident Advisor. He will provide advisory services and technical support to the Government in the following areas: public sector debt institutional arrangements, debt recording and management, debt strategy, cost and risk analysis and cash management. The main duties of the Resident Advisor are: 1. Providing technical support for the improvement of the institutional framework for public sector debt data recording and public sector data management 2. Advising in the formulation of public sector debt management policies and review of the public debt management legislation 3. Providing support and value added to review the public sector debt management strategy based on cost and risks analysis and preparing debt management manuals 4. Providing support for developing an integrated framework for cash and debt management 5. Reviewing reports of short term consultants (see Component 2 below) and providing support for the implementation of agreed recommendations 6. Providing training and build internal capacity for the formulation of a debt management policy and reviewing debt management strategies, particularly on cost and risk analysis through the establishment of an internal training program. Minimum training outputs will include: assessment of training needs to identify the main training activities to be carried out under the assignment, building capacity of debt management staff through training and coaching on the implementation and sound application of cost/risk analysis and procedures developed under this assignment and organizing and delivering workshops on issues connected to strategy development and related issues.

In carrying out this assignment, the Resident Advisor shall build on previous and existing efforts and work closely with the BOM's and the MOFED's technical teams. He will review the existing debt management practices and processes at the MOFED, the Treasury and the Central Bank including the review of the methodology of documentation underpinning those processes, where such documentation exists. He will prepare a summary of existing gaps and drawbacks and present recommendations on the best approach for their elimination/mitigation. In making recommendations, account will be taken of institutional conditions and reform plans, and the objective of achieving realistic progress towards internationally recognized good practices in the area within the specified timeframe.

The project will support the authorities to improve oversight of aggregate fiscal risks from other public sector entities. This involves DPSU and the Public Enterprise Reform Unit (PERU) which is under the aegis of the MOFED. A short-term expert will be provided for that matter. The terms of Reference the consultant will be determined by the Resident Advisor, his key tasks will be threefold, namely, 1. providing guidance and support for the preparation of a report on fiscal risks from other public entities, particularly on Government loan guarantees, 2. reviewing and advising on the framework for monitoring the performance of public enterprises and, 3. providing guidance and technical support for the consolidation of public sector accounts.

This project component will also strengthen the operational capacity of the DPSU. It will contribute to the full operationalization of the unit by providing IT equipment (computers, debt management software and printers (Annex 5 provides the detailed information).

Component 2: Support to Deepen the Domestic Debt Market

This component will support the authorities' efforts to deepen the primary and secondary markets for government securities by providing technical assistance. The technical assistance will consist in providing one short-term expert for the development of primary and secondary markets as well as for the establishment of the yield curve.

The Consultant, in consultation with the Government will prepare a Strategy and an Action Plan for the deepening of the domestic debt market. His tasks will include: 1. Reviewing the current primary dealer system 2. Analyzing the possibility and the benefices of removing the rule on short-selling 3. Comparing with other countries the possibility to establish a repo facility where primary dealers can borrow bonds to cover short positions 4. Quantifying cash management and market structure consequences 5. Proposing the strategy for the creation of a solid yield curve which will provide the crucial reference for the market to develop and price corporate and other debt products, allowing the financial markets to broaden and deepen, facilitating but also becoming a source of economic growth. ------------------------------------------------ Box 1 - Domestic Debt Market Development

The market and its development lie with the private banks. Nevertheless, The Bank of Mauritius, in cooperation with the MOFED, could take a number of actions to jumpstart secondary trading and price discovery: a) Primary Dealer System: Full review of the current, not functioning, primary dealer system, with the objective of enforcing executable quotation among (possible fewer than currently) intermediary operators, who are committed to risk warehousing and distribution. b) Primary Market Rules/Commitment: Become a transparent and reliable issuer that respects market discipline, with regard to market consultation, issuance calendar and auction execution. c) Rule on short-selling: Abolish the (unwritten) rule against short-selling, as this impedes trading. d) Repo facility for primary dealers: Jumpstart the development of a repo market by providing, on behalf of the issuing government, a repo facility for primary dealers (in combination with the creation of large benchmark bonds). e) Benchmark issuance: Primary market I: issuance of benchmarks by means of reopening, in order to create a minimum outstanding size per issue of Rup [8]bn. This implies consolidation of debt in no more than [15] issues. These are several ways to mitigate cash management consequences. f) Frequency of Issuance: Primary market II: limit both the frequency of auctions and the number of new maturities. Both are detrimental to the incentives for secondary trading.

Source: Action plan for debt management improvement (MOFED) ---------------------------------------------- Specific duties of the consultant will be determined by the Resident Advisor in consultation with the BOM and the MOFED (see Component 1 above). The short-term expert will also contribute to the training of the debt management staff in the fields of their specific expertise.

Specific objectives are to:

(i) enhance the capacity and institutional framework for public sector debt recording, reporting, management, policy and strategy formulation;

(ii) reinforce oversight of fiscal risks from public enterprises, and;

(iii) strengthen the primary market and deepen the secondary market.

The goal of the project is to enhance public debt management capacity for contributing to the maintenance of public debt sustainability and macroeconomic stability.

The the direct beneficiaries are: The ministry of Finance and Economic Development and the Central Bank of Mauritius. The ultimate beneficiaries are the Mauritian population, as the project support enhanced fiscal policy intruments and enhanced oversight of fiscal sustainability

SUGDEN Carina - OSGE2

Finance source	Amount
MICF	UAC 296,013
Total	UAC 296,013