INSTITUTIONAL FRAMEWORK FOR PUBLIC SECTOR BORROWING
by Mr. Nihal Kappagoda
(Article Reference: Document No.17, September 2002)

CONCLUSION

Governments need clear authority to borrow granted to them in the constitution or in legislation. The law should enable this authority to be delegated to an agency of the government subject to prior legislative authorization or within ceilings set in Annual Appropriation Acts. Governments are required to meet their repayment obligations and provide assurances to lenders regarding the borrowing process and their rights. The legislation should also assign the responsibility for public debt management to a single agency while the regulatory framework describes the internal management process for public sector borrowings. The organizational structure set in place should enable borrowings to be undertaken in the most effective manner based on the legal and regulatory framework that is established.

A dynamic aspect of public debt management is the development of a domestic securities market. It will require stability in political institutions, sound fiscal and monetary policies, an effective legal and regulatory framework, a transparent settlement system, and a financial system that can support an evolving domestic securities market. Sound debt management by the PDMO can assist the process.

This paper has endeavored to describe the various elements of the legal and regulatory framework and organizational arrangements that must be established. There is no model institutional framework that could be replicated in all developing and emerging market countries. Whatever framework is adopted it must be dynamic in nature and subject to change periodically as each country develops, its needs evolve and the international environment changes. The frameworks in more developed countries can be studied for lessons and provide guidance but ultimately the needs of each country will dictate what should be done.

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