By: Oliver Wyman is a global leader in management consulting
Governments across MEA have witnessed subdued economic growth and subsequent challenges in balancing fiscal budgets with the recent fluctuations in oil and other commodity prices. As a result, governments in the region have had to increase the use of sovereign debt as a financing tool, highlights the newly launched report by Oliver Wyman titled “New Players in the International Bond Markets: What next to manage debt successfully?”
According to the report, the increase in sovereign debt issuance now needs to be supported by robust management. Most countries in MEA have been relatively slow in establishing and building out Debt Management Offices (DMO) and this should now be a priority for governments, mentions the new report.
Oliver Wyman expects MEA governments to continue issuing debt as a financing mechanism, complementing broader fiscal reforms. This will need to be supported by an upgrade in the skills and talent of DMO employees, as well as the supporting tools and infrastructure.
“With suppressed oil prices over recent years, sovereign debt is becoming an increasingly common financing tool in the region and it is here to stay. At present, debt managers and governments are still in the early stages of taking action to ensure they are set up to manage national financial stability in the future,” commented Paul Calvey, Partner, Financial Services, Oliver Wyman.
Beyond the need for improved debt management practices, Governments must start to cultivate and develop their local bond markets. This will help to further diversify funding options and contribute to maintaining a sovereign yield curve. The report highlights key considerations for MEA governments in addressing the issuer and investment base, the primary and secondary market design, and the legal and regulatory framework.
The report concludes with key considerations for Government stakeholders, in particular, the need to elevate the role of DMOs, and the importance to take a more holistic view of Government finances. It also emphasizes the need for Governments to continue to take action and not become complacent on debt management practices in the wake of recent oil price improvements.
For more information, please download the report here.