Establishing A Debt Management Office in Saudi Arabia
Challenge
Until recently, Saudi Arabia did not face any significant funding gaps, and the country didn’t need to develop any expertise in public debt management – until the steep fall in oil prices caused fiscal deficits, as the government had to borrow more than the revenues it’s received from oil.
The government began to use a combination of drawdown from sizeable fiscal buffers and debt issuance, and to safeguard macroeconomic stability, Saudi Arabia’s Vision 2030 and the National Transformation Program targeted a balanced budget and called for further development of investment capabilities. To achieve this, the Kingdom needed to deepen liquidity in the capital markets, fortify the role of the debt market, and pave the way for the derivatives market.
Approach
In 2016, the authorities requested that the IMF share its knowledge and expertise to establish a Debt Management Office (DMO) and develop a comprehensive public debt management framework. After analyzing the current financing situation and determining how the DMO’s establishment could improve macroeconomic management, the IMF and the Kingdom worked together to:
- Establish a DMO under the Ministry of Finance that would be responsible for developing the legal, governance, and risk management frameworks for debt management;
- Develop a Medium-Term Debt Strategy to properly assess the trade-offs of alternative debt strategies in light of the expected fiscal deficits over the medium term; and
- Promote debt management policies and practices that facilitate local debt market development, such as using auctions as issuance mechanisms and adopting efficient communication channels with market participants.
Impact
The Kingdom now has a functioning DMO, managed by director who will manage future borrowing and bond issuance. The IMF’s engagement with Saudi Arabia is a useful model for other oil-exporting countries in the Gulf region and elsewhere in similar circumstances.