80563 DebtManagementPerf o ma r nceAssessment (DeMP A) Mozambique March2008 TheD eMPAi s a me thodologyf ora sse ssn igp ublicd ebtma nageme ntp erf orma nce h t o r ughac omp rehensives eto fi n dc iatorss panningth eful l a r ngeof governme ntdebt ma nageme ntfu ncti ons.I ti sa d aptedf rom th eP ub i lcE xpendit u ea r ndF inancial Accountabl it iy( PEFA)f rame wo k r .TheD eMP Atool presentsthe1 5d ebt perf orma nce n id c iatorsalong withas cori ng me h t odology.TheD eMP At oolisc ompleme ntedb y guide thatp rov d ies s up pe lme ntalin f o ma r to in f ort he u se o ft he indicators. Foraddito inali nformationont heWo rl dBanksD ’ ebtMa nagementTechnc ial Asss itanceProgram, n icludn igmo reontheDeMPAP o r gram,pe lasevist i ourwebst ie a:h t tp t : //www wo . l rdbank.org/debt May 2009 GOVERNMENT DEBT MANAGEMENT PERFORMANCE REPORT – MOZAMBIQUE Contents Government Debt Management Performance Report – Mozambique 1 1. Executive Summary 2 2. Background 3 3. Performance Assessment 6 DPI-1 Legal Framework ........................................................................................... 7 DPI-2 Managerial Structure .................................................................................... 9 DPI-3 Debt Management Strategy ..................................................................... 10 DPI-4 Evaluation of Debt Management Operations........................................ 11 DPI-5 Audit .............................................................................................................. 11 DPI-6 Coordination with Fiscal Policy ................................................................. 13 DPI-7 Coordination with Monetary Policy .......................................................... 13 DPI-8 Domestic Borrowing .................................................................................... 16 DPI-9 External Borrowing....................................................................................... 17 DPI-10 Loan Guarantees, On-lending and Debt-related Transactions ............ 18 DPI-11 Cash Flow Forecasting and Cash Balance Management .................... 19 DPI-12 Debt Administration and Data Security .................................................... 22 DPI-13 Segregation of Duties, Staff Capacity and Business Continuity ............... 24 DPI-14 Debt Records ................................................................................................ 25 DPI-15 Debt Reporting ............................................................................................. 26 4. Conclusions and Next Steps 28 Annex 1 – List of Meetings 30 1 1. EXECUTIVE SUMMARY From March 2 to 12, 2008, a World Bank team composed of Per-Olof Jönsson, Juan Pedro Schmid, and Frederico Gil Sander traveled to Mozambique to undertake an assessment of the government’s debt management capacity and institutions using the Debt Management Performance Assessment (DeMPA) Tool. 1 The DeMPA is a methodology for assessing government debt management (DeM) performance through a comprehensive set of indicators spanning the full range of DeM functions. The team met with a number of officials from the Ministry of Finance (MoF), especially from the Treasury (Direcção Nacional do Tesouro DNT), the Budget Directorate and the internal auditor (Inspetor das Finanças). Within the Treasury, the team worked closely with the Public Debt Section. Meetings were also held with officials from the Ministry of Planning, the Stock Exchange, the Central Bank, and with representatives from the Financial Sector Technical Assistance Project (FSTAP), the Tribunal Administrativo (the autonomous supreme audit institution), and members of the international donor community (see Annex 1 for a full list of individuals and institutions). The assessment reveals that Mozambique has points of strength in most areas evaluated by the DeMPA, but that it meets the minimum requirements only in the fields of the legal framework and managerial structure. Mozambique does not meet the minimum requirements with respect to the other indicators, although in many cases work is underway that would lead to meeting the requirements (e.g., debt strategy, debt reporting) or only small improvements would be required in order to meet those requirements (e.g., the annual report, coordination with fiscal policy). The concluding section of this paper outlines areas in which the minimum requirement could be met over the short run with minimal adjustments, and areas where progress would require stronger efforts, and possibly TA from donors. There are areas where the authorities’ capacity with respect to debt management operations is sufficient. However, it is clear that further improvements are needed in several areas. In particular, the key challenges identified by the assessment are the finalization and implementation of a debt strategy, and the strengthening of cash management practices. 1 The Debt Management Performance Assessment Tool as well as the accompanying Guide, which provides supplemental information and detailed descriptions of individual indicators can be downloaded from: http://go.worldbank.org/WU75GZA040. 2 2. BACKGROUND 2.1 COUNTRY BACKGROUND With the end of the civil war in 1992, Mozambique embarked on a period of strong recovery. Economic growth over the period 1996 to 2007 averaged 8 percent per year; among the highest in Africa. Macroeconomic stability has been maintained through prudent monetary and fiscal policies. Apart from short periods of higher inflation due to oil- and food-price increases, the country has experienced single-digit inflation over the past few years. Mozambique benefited from debt relief under the Heavily Indebted Poor Country (HIPC) Initiative in 2001 and the Multilateral Debt Relief Initiative (MDRI) in 2006. The NPV of external debt was reduced from 709 percent of exports at end- 1997, to an estimated 33 percent at end-2007 (equivalent to 31 percent of GDP). According to the latest debt sustainability analysis (DSA) conducted jointly by the IMF and the World Bank, the low debt levels resulting from these debt relief initiatives and prudent borrowing policies have reduced the probability of a return to unsustainable debt dynamics. The government has remained committed to seeking new financing with at least 35% concessionality, which has been made possible by the strong involvement of the international donor community. Due in large part to Mozambique’s success in implementing public financial management reforms, a substantial proportion of external assistance takes the form of direct budget support. The budget for 2008 projects external funding of 55 percent from various bilateral and multilateral donors. Debt management functions in Mozambique are shared between the Public Debt section of the Treasury (the Direcção Nacional do Tesouro – Área da Dívida Pública – “DNT-ADP”) and the Central Bank (the Banco de Moçambique – “BM”). The DNT-ADP has primary responsibility for managing external debt and medium- and long-term domestic debt, while the BM manages the short-term (under one-year) domestic debt issued for both monetary policy and treasury purposes. A transition of debt management functions from the BM to the DNT- ADP was finalized in 2007 with the transfer of the bilateral debt database. The DNT-ADP has approximately 25 staff, and is composed of three departments: registry and payments; analysis and domestic debt; and, external borrowings. In addition to the Public Debt section, the Treasury has an Economic section, which includes cash management and the management of credits from the state (such as on-lending). Mozambique has received technical assistance in the area of debt management from the World Bank (through FSTAP), COMSEC, the Swedish International Development Agency (SIDA), Debt Relief International (DRI), the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), and Crown Agents. The FSTAP has two components related to debt management and is supporting, among others, the development of a debt 3 strategy, which has been started by Debt Relief International, the publication of a statistical bulletin, and the reorganization of the DNT-ADP’s departments into front-, middle-, and back-offices following international best practices. COMSEC has provided support and training in the CS-DRMS, while Crown Agents have most recently provided a workshop on loan negotiations. 2.2 PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY (PEFA) ASSESSMENT – 2006 A PEFA report for Mozambique was prepared in March 2006. The PEFA assessed Public Finance Management systems and processes for the 2004 budget cycle, including accounting and audit information on the past year’s expenditures produced during 2005. The PEFA assessment goes well beyond debt management operations, which is the focus of DeMPA, but a certain overlap exists. On the issues covered also by the DeMPA, the PEFA found strong practices related to cash flow forecasting, the quality of debt records, and the overall legal framework for borrowing and guarantee issuing. The PEFA report also gives high rating for the reconciliation of bank accounts, which according to the report are, in general, reconciled on daily basis. However, the PEFA report scores internal and external audit with a low rating. DeMPA scores tend to be lower than those in similar areas of the PEFA. For example, the PEFA gave an “A” for the scope and frequency of debt sustainability analysis, based on the fact that debt sustainability analyses (DSAs) are prepared yearly by the IMF and the World Bank, with inputs from the DNT- ADP. In DPI-6, the DeMPA rated the availability of a debt sustainability analysis as a “C”, based on the fact that the DSAs are not undertaken by the government. On the other hand, the DeMPA generally agrees with the PEFA’s favorable assessment of the legal framework. On the subject of the reconciliation of bank accounts, the DeMPA only considers accounts that belong exclusively to the debt management entity, which is not the case in Mozambique. The PEFA gives a relatively high rating for debt records. However, we found that disbursements are often only registered with delays, which implies that the government does not meet the minimum requirement. Further comparison of the assessments put forward by the PEFA and DeMPA can be found in the sections related to the respective indicators. 2.3 ASSESSMENT AND SCORING METHODOLOGY The DeMPA comprises a set of 15 debt management performance indicators (DPIs), which aim to cover the full spectrum of government debt management (DeM) operations, as well as the overall environment in which these operations are conducted. While the DeMPA does not specify recommendations on reforms and/or capacity and institution building needs, the performance indicators do stipulate a minimum level that should be met under all conditions. Consequently, 4 indicators for which the minimum requirements are not met, indicate areas in which reform and/or capacity building would be most beneficial. The scope of the DeMPA includes central government debt management activities and closely related functions, such as the issuance of loan guarantees, on-lending, cash-flow forecasting, and cash balance management. Thus, the DeMPA does not assess the ability to manage the wider public debt, including implicit contingent liabilities (such as liabilities of the pension system, losses of state-owned enterprises, etc.), as well as the debt of state-owned enterprises if these are not guaranteed by the central government. The DPIs have one or more dimensions linked to the subject of the DPI. Each of these dimensions is assessed separately. An aggregate score for each indicator is then based on the assessments for the individual dimensions of the indicator. For DPIs that have two or more dimensions, an aggregate score is determined by averaging the scores for individual dimensions of an indicator. The scoring methodology assesses each dimension, and assigns a score of either “A”, “B”, or “C” based on the criteria listed. A score of “C” indicates that a minimum requirement for that dimension has been met. A minimum requirement is the necessary condition for effective performance under the particular dimension being measured. If the minimum requirements set out in “C” are not met, then a “D” score is assigned. In the cases where a dimension cannot be assessed, a score of “N/R” (not rated or assessed) is assigned. The A score reflects sound practice for that particular dimension of the indicator. The “B” score is an in-between score lying between the minimum requirements and sound practice. 5 3. PERFORMANCE ASSESSMENT Summary of Performance Indicator Assessment Performance Indicators Score Governance and Strategy Development DPI-1 Legal framework C DPI-2 Managerial structure C DPI -3 Debt management strategy D DPI -4 Evaluation of debt management D operations DPI -5 Audit D Coordination with Macroeconomic Policies DPI -6 Coordination with fiscal policy D+ DPI -7 Coordination with monetary policy D+ Borrowing and Related Financing Activities DPI -8 Domestic Borrowing D DPI -9 External Borrowing D DPI -10 Loan guarantees, on-lending and D derivatives Cash Flow Forecasting and Cash Balance Management DPI -11 Cash flow forecasting and cash balance D management Operational Risk Management DPI -12 Debt administration and data security D DPI -13 Segregation of duties, staff capacity and D business continuity Debt Records and Reporting DPI -14 Debt records D+ DPI -15 Debt reporting D 6 3.1 GOVERNANCE AND STRATEGY DEVELOPMENT DPI-1 Legal Framework Dimension Score 1. The existence, coverage and content of the legal framework C The overall legal framework for public financial management (SISTAFE – Sistema de Administração Financeira do Estado) was approved in February 2002, and implementing regulations were issued in July of that year. Although the SISTAFE law itself only contains definitions of public debt, the implementing regulations specify that the Ministry of Finance must approve all medium- and long-term borrowing (i.e. credits that are due beyond the fiscal year in which they are contracted) of all entities that participate (directly or indirectly) in the execution of the budget (i.e., line ministries, agencies, and sub-national governments). Regulations permit certain short-term borrowing without approval of the MoF. There is a ceiling for such borrowings, which are subject to approval by the respective areas. A presidential decree, which has the status of primary legislation in Mozambique, also regulates the issuances of loan guarantees. In addition, the yearly budget law formally authorizes the government to borrow externally and domestically to finance the budget deficit. The budget also contains an explicit authorization for the government to issue guarantees up to a ceiling, and states that external borrowing must be concessional. Regarding domestic debt, the budget law specifies the parameters for interest rates, maturity and spread. Finally, it puts forward a number of guidelines for the granting of credit by the government, which is primarily directed towards state- owned enterprises (SOEs). Parliamentary approval is not required should the government succeed in attracting more external concessional financing for expenditures in the budget. The Presidential Decree issued in April 2005 that created the Ministry of Finance gives the Minister of Finance the responsibility to “sign, on behalf of the State, financial agreements that lead to the creation of public indebtedness…” The authorities’ state that this express attribution of responsibility to the Minister of Finance is equivalent to a unique delegation. Moreover, since guarantees create financial obligations for the state, the Decree is also interpreted to include both borrowing and the issuance of guarantees. Secondary legislation further codifies the duties of the MoF and, within MoF, the Treasury, in the borrowing and guarantee-issuing processes. Following the split of the Ministry of Planning and Finance into two separate ministries in 2005, the Minister of Planning was designated as Governor of the World Bank, the African Development Bank (AfDB) and the International Fund for Agricultural Development (IFAD). For this reason, the government understood that the Minister of Planning should sign loan agreements with these three 7 institutions. These loan agreements are immediately taken to the MoF, however, so that they can be registered in the debt management system. Regarding domestic debt, a decree formally delegates the responsibility of issuing Treasury Bills and Treasury bonds to the Central Bank with the support of the Stock Exchange, respectively. The MoF is in charge of issuing Treasury Bonds. However, the Minister seeks approval from the Council of Ministers before issuing those instruments. The Constitution contains a general reporting requirement from the government to the Parliament, stating that the government must report on its activities related to budget implementation, including its financing. The statutes of Mozambique’s Supreme Audit Institution, the Tribunal Administrativo (“TA”), require that it audit the government’s execution of the budget, including financing aspects related to debt management. There is no requirement, however, for performance auditing or auditing of debt management operations specifically. The budget law provides a clear borrowing mandate to the government, while the SISTAFE regulations unambiguously require that all medium- and long-term borrowings by government entities be approved by the Minister of Finance. The presidential decree also authorizes the Minister of Finance to sign loan and guarantee contracts. Within the MoF, it is the duty of the Treasury, and more precisely the debt section, to undertake debt and guarantee activities. In addition, the ‘Departamento de Contravalores’ within the Treasury, is responsible for on-lending activities. For external debt to become effective, the Council of Ministers and the President must ratify the agreement following its signature. There is a risk that the budget will not be approved in time, which could create uncertainty about the borrowing mandate. However, the authorities reported that in practice there are strong incentives to approve the budget in time, suggesting that this risk should not be overestimated. The special delegation to the Minister of Planning to sign loan agreements with two specified creditors constitutes a breach in the otherwise clear delegation line. However, this does not disqualify the government from meeting the minimum requirements for this indicator. The government does not meet the requirements for higher scoring since the laws only require reporting to Parliament on disbursements and debt service (not including debt stocks and guarantees), and only requires external auditing of accounts and not of performance. 8 DPI-2 Managerial Structure Dimension Score 1. The managerial structure for central government borrowings and D debt-related transactions 2. The managerial structure for preparation and issuance of central B government loan guarantees Overall Score C External borrowing follows procedures common in countries relying primarily on concessional financing. Line ministries assess the needs of their respective sectors and identify potential projects, which are then included in long-term economic plans and integrated in the medium-term fiscal framework elaborated by the Ministry of Planning and Development (MPD) and the Budget Directorate in the MoF. The government (through the Council of Ministers) ultimately approves the medium term fiscal framework. Line ministries often identify and have the first contacts with potential donors for their projects. A negotiating team is then formed with representatives from the line ministry, Treasury, MPD, and the Central Bank. Representatives from the budget office sometimes join the team. When it is regarded necessary, legal advisors participate in the negotiating process. The DNT-ADP, which is one of the two main Treasury areas 2 , represents the Treasury in the negotiations. The second section of the Treasury consists of the Economic area (AE), which is responsible for budget execution, on-lending, and also performs similar duties as the ADP with regard to grants. Among other responsibilities of the DNT-ADP in the negotiating process is to verify that the concessionality requirement of 35 % stipulated in the Budget law is met. During the disbursement process, the project implementation unit initiates disbursements. The MoF does not approve the disbursements. Instead, in most cases, the disbursement requests are sent to the Central Bank, which makes the actual request to the creditor. For World Bank loans, the project implementation unit sends the disbursement request directly to the WB. This is an exception based on a memorandum between the World Bank and the Ministry of Finance. The project implementation unit does not inform the DNT-ADP about the disbursement. It is only when the creditor sends a confirmation/billing that the DNT-ADP is informed about the disbursement, often causing delays. 2 The Treasury is formally organized into several departments, but since these departments report to one of the two different Deputy Directors of the Treasury, the Treasury de facto consists of two sections, each under its own Deputy Director. 9 Domestic borrowing consists of T-Bills and T-Bonds, which are issued by the BM. The MoF has issued Treasury bonds for financing the budget, as well as for the purpose of recapitalizing the BM and at least one other bank. The issuance of T- Bonds is undertaken through the Stock Exchange, which is an autonomous entity under auspices of the Ministry of Finance. As a consequence of the availability of low cost external funding, only a few bonds have been issued so far. The government has no credit line facility in the Central Bank, but may use funds from T-Bill issuance to cover short-term cash shortfalls. The Central Bank initiates and performs the T-Bill auctions, which are normally conducted for monetary policy purposes only. The proceeds from the auction are transferred to a special T-Bill account on behalf of the Treasury. This account is managed by the Economic area, which is also responsible for ensuring that there are funds in the Treasury Account. Unless the Economic area decides to transfer the proceeds from the T-Bill account to the Treasury Account, the funds will remain idle in the T- Bill Account, and would be used for the redemption of the same T-Bills. Loan guarantees are not issued very frequently, but when they are issued, this process is the responsibility of the DNT-ADP, which prepares the guarantee for signature by the Minister of Finance. Loan guarantees are issued to state-owned enterprises, up to a ceiling specified in the budget. Although the DNT-ADP is involved in most of the debt transactions, it is not a Principal DeM entity, since the BM conducts T-Bill issues under its own initiative without any coordination with the DNT-ADP. In the case of external borrowings, the disbursements take place without approval or notice to the DNT-ADP or any other body of MoF. Because of this lack of coordination, the government does not meet the minimum requirements for the first dimension. Only the DNT-ADP issues loan guarantees. Therefore the government meets the criteria for a “B” score for the second dimension. Since the DNT-ADP is not the principal DeM entity, the criteria for a score of “A” are not met. DPI-3 Debt Management Strategy Dimension Score 1. The quality of the debt management strategy document D 2. The decision-making process, updating and publication of the N/R debt management strategy Overall Score D The government has been working on developing a debt strategy for some time, but the process has not been finalized. The DRI supported these efforts and has held workshops with stakeholders as part of this process. The draft strategy rather resembles a debt sustainability analysis than a strategy document. While the draft strategy surely will serve as an input to a final debt strategy and does contain a number of recommendations, it does not specify targets or ranges for key ratios, or provide guidelines for future borrowing. Indeed, one of the 10 recommendations of the strategy is to develop a policy for external borrowings, which more closely fits the definition of a debt strategy according to international practices. This does not mean that the operations are undertaken without any guidance. The Budget document contains criteria that external borrowing must have a minimum 35% concessionality. In other regards, there are no clear guidelines regarding how borrowing and debt management should be conducted. Thus, the government does not meet the minimum requirements for the first dimension, and consequently, there is no process to evaluate the second dimension. DPI-4 Evaluation of Debt Management Operations Dimension Score 1. Level of disclosure—in an annual report or its equivalent—of D government DeM activities, central government debt, evaluation of outcomes against stated objectives, and compliance with the government’s debt management strategy The DNT-ADP prepares an annual report for the Minister of Finance, containing details about its activities, including debt contracting, disbursements and debt service, both for external and domestic debt. However, this report does not contain any information about debt stocks or outstanding loan guarantees. Therefore, the annual report does not meet the minimum requirements for this indicator. 3 DPI-5 Audit Dimension Score 1. Frequency of internal and external audit of central government D debt management activities, policies and operations, as well as publication of external audit reports 2. Degree of commitment to address the outcomes from internal N/R and external audits Overall Score D 3 According to an update provided by the government in April 2009, the DNT-ADP annual report covers details about all activities including debt stocks and analysis. The situation described above reflects the situation at the time of the mission in March 2008. 11 The Tribunal Administrativo (TA) is the supreme audit institution in Mozambique, and is a member of INTOSAI (International Organization of Supreme Audit Institutions). It is part of the judiciary branch of the government, and is not subordinate to the legislative or executive branches. The main duty of the TA is to audit the execution of the budget (the General Accounts of the State). In this process, the TA requests additional information from the DNT-ADP--e.g., regarding debt stocks or the breakdown by creditors of multilateral debt--and verifies whether debt transactions have been properly accounted for by the government. Auditing is guided by a yearly auditing plan, which is developed according to different criteria; risk being the most important one. While at the moment the TA focuses exclusively on auditing the government’s accounts, in the long-term, the TA intends to expand its activities to include performance auditing. In the cases in which the figures from different sources do not match, the auditors investigate the reasons, which can involve looking into procedures and routines. The Tribunal has not specifically focused on debt management operations. However, some special auditing efforts have been conducted in the area, including an analysis of the developments during the HIPC process, and more recently in the area of on-lending and loan guarantees. The Tribunal has, for example, remarked on the high proportion of non-performing on-lending contracts and the lack of reporting regarding some loans that resulted from honoring guarantees. The TA expressed the view that the Treasury is committed to following the recommendations put forward by the Tribunal in its report. The answers from the Treasury on the auditing reports are satisfactory and also support this view. In addition, there is an internal audit function in the Ministry of Finance (the Inspetor Geral das Finanças IGF), which conducts auditing of specific areas. Internal audits are always initiated by the Minister of Finance, though sometimes donor requests form the basis for the internal audits, which includes auditing of projects and municipalities. As with the TA, the emphasis is on the audit of accounts rather than activities. The IGF has not conducted any auditing of DeM activities, policies, or operations. The government does not meet the minimum requirements for the first dimension since the external auditor has not conducted any audit of government DeM activities, policies, or operations within the past 5 years. Notwithstanding the government’s adequate responses and commitment to undertake measures recommended by TA, because the audit has not focused on activities, policies, or operations, this response cannot be seen as an indicator of the government’s commitment to follow recommendations in the context of this dimension. Consequently, the second dimension cannot be assessed. 3.2 COORDINATION WITH MACROECONOMIC POLICIES 12 DPI-6 Coordination with Fiscal Policy Dimension Score 1. Coordination with fiscal policy through the provision of accurate D and timely forecasts on total debt and debt service under different scenarios 2. Availability of key fiscal variables and/or an analysis of debt C sustainability, and the frequency with which debt sustainability analysis is undertaken Overall Score D+ As part of the yearly budget preparation process, which includes the preparation of the rolling three-year medium-term fiscal plan, the DNT-ADP prepares and submits forecasts on debt service to the Budget directorate. As discussed under DPI 14, the DNT-ADP often receives disbursement information with delays, leading to an underestimation of debt service projections. Thus, the minimum requirements for the first dimension are not met. The annual medium term fiscal plan includes projections on revenues, expenditures, and debt. The details of the planned projects are not included directly in the fiscal plan, but only in the long-term economic plan. In the fiscal plan, only the financial consequences of the projects are included. The MoF and the MPD produce the medium-term fiscal plan and the Council of Ministers approves it. The current plan covers the period 2008-2010. The DNT-ADP has access to both actual and forecasts of key fiscal variables from the fiscal plan. Therefore, Mozambique meets the minimum requirements for the second dimension. DSAs are produced by the World Bank and the IMF, with support and input from the DNT-ADP. At this time, the government does not conduct DSAs on its own. Thus, while Mozambique meets the minimum requirements, the requirements for a higher score (biannual undertaking of a DSA), are not met. DPI-7 Coordination with Monetary Policy Dimension Score 1. Coordination with monetary policy implementation through D information sharing on debt transactions and government’s current and future cash flows 2. Extent of a limit to direct access of resources from the Central C Bank Overall Score D+ The BM issues T-Bills on a weekly basis to banks participating in the inter-bank money market. T-Bills are usually issued for monetary purposes, but on occasion 13 they are also used for cash management purposes to cover shortfalls in government revenues. The issue of T-Bills is regulated by Decree 22/2004, which states that the MoF pays for T-Bills issued for budget execution needs, whereas the BM pays for T-Bills issued for monetary purposes. A ministerial resolution specifies a yearly ceiling on the issuance of T-Bills. During 2007, the government did not use any of the funds raised by T-Bill issuances. In these cases the proceeds from the auctions are kept in Treasury accounts in the Central Bank, which carries the same interest until redemption as the T-Bills. When the Treasury utilizes part of the proceeds from the auctions (usually of 364-day T-Bills) for cash management purposes, the uses of funds are not communicated to the market before the issuing. The Central Bank Act allows the BM to extend credit to the government up to a limit of 10% of the revenues the year before the previous year. However, the Treasury has not utilized such credits from the Central Bank since 1992, and therefore has to rely on other approaches to ensure that funds are available on the Treasury account for budget execution. These techniques mainly consist of a careful calibration in the monthly allocation of budget funds to line ministries and of the transfer of funds from government foreign currency accounts in the Central Bank (i.e. conversion into local currency and transfer to the Treasury Account). These operations mainly consist of the weekly T-Bills auctions. In addition the Central Bank conducts repurchase agreements in T-Bills. 4 The BM also conducts foreign currency transactions on a small scale for monetary policy purposes. All these transactions are based on liquidity forecasts prepared by the Central Bank. The Treasury provides input to these forecasts in the form of debt service and foreign currency disbursement forecasts, as well as forecasts of the cash flows on the Treasury Account. Cash flow forecasts from the Treasury are undertaken on a daily basis, for one week ahead. The Central Bank itself performs a daily forecast of the cash flows for liquidity management purposes with a two week horizon, and, therefore, also does some of its own forecasts of the government’s cash flows. There are a number of regular meetings between the MoF and the Central Bank, including high level policy meetings and weekly technical meetings on cash flow issues. Currently, all T-Bills are issued for monetary purposes. In this sense there is a separation between monetary operations and debt management. However, procedures for when the Treasury utilizes the T-Bill proceeds for its own purposes do not make it clear whether an auction actually serves the government’s financing needs or monetary policy. Therefore, the minimum requirements for the first indicator are not met. 4 Repurchase agreements, commonly known as “repos”, are the simultaneous sale and agreement to repurchase securities. 14 With respect to the second dimension, although cash advances from the Central Bank could be used, there is a ceiling imposed by legislation; thus, the minimum requirement is fulfilled. A higher rating cannot be given since the same legislation imposes a limit of one year for repayment of the advance, whereas a “B” rating would require the tenor of the advances to be limited to no more than three months. 15 3.3 BORROWING AND RELATED FINANCING ACTIVITIES DPI-8 Domestic Borrowing Dimension Score 1. The extent to which market-based mechanisms are used to issue D debt, the publication of a borrowing plan for T-Bills and T-Bonds, and the preparation of an annual plan for aggregate amount of local currency borrowing in the domestic market, divided between the wholesale and retail markets. 2. The availability and quality of documented procedures for local N/R currency borrowing in the domestic market Overall Score D The Central Bank usually issues T-Bills once per week through auctions following a multiple price (interest rate) format. T-Bills are issued with maturities of 28, 63, 91, 182, and 364 days. All banks that participate in the inter-bank money market are eligible bidders. The General Manager of the Markets Department at the BM makes the decision on volumes and on which bids to accept, based on a delegation from the Governor of the BM. The registry system is maintained within the BM. The procedures for T-Bill issuance and participation in the auctions are presented in a T-Bill notice from 2005, produced by the Central Bank, which is available on the web. Issue prices are made public through a Bulletin of Inter-Bank Money and Foreign Exchange Markets, although the latest such bulletin posted on the BM’s website is currently for the third quarter of 2007. The volumes are presented to the market on the same day as the auction. Settlement also takes place the same day as the auction and, therefore, has an immediate effect on liquidity. The secondary market is not very active, but information on volumes and average rates is also reported in the above-referenced bulletin. The bid-offer spread is around 2 percentage points. The government issues T-Bonds through the Stock Exchange. However, the government currently has sufficient access to concessional external funding, so the frequency of such issues is low. The last T-Bond issue took place in 2005 and was for recapitalization of the BM, for financing part of the budget deficit and for market development. The sales are in subscription form, and as with T-Bills, the general public has access to such instruments only through financial institutions. The Stock Exchange is also the market place for secondary trading in the bonds and keeps the registry. A government decree specifies the roles and responsibilities of the Stock Exchange. Although a term sheet for the July 2005 issue and a road-show-type of presentation have been made available, no prospectus appears to exist. The Stock Exchange maintains a mailing list that informs market participants about new issuances and conditions. The Stock 16 Exchange affirms that information is also available on the Stock Exchange webpage, but access is restricted to registered market participants, and the team did not receive examples of the bulletin. The 2008 budget anticipates a new T-Bond issue. The DNT-ADP is currently discussing the new issue with the Stock Exchange, which in turn is having discussions with market participants. Based on instructions from the DNT-ADP, the Stock Exchange will produce a prospectus and term sheet that will contain information about the terms and conditions of the security, including how the security should be purchased and traded. Thus, the government uses market-based instruments for accessing the domestic market, but no borrowing plans for T-Bills are presented. The minimum requirements for the first dimension are, therefore, not met. Regarding the second dimension, the BM presents some information for T-Bills on the web. The information regarding the bonds is claimed to be available upon request (and is reported to be available to market participants on the website of the Stock Exchange). However, since the team was unable to verify this information, we were not able to rate this dimension5. DPI-9 External Borrowing Dimension Score 1. Degree of assessment of the most beneficial/cost-effective D borrowing terms and conditions (lender or source of funds, currency, interest rate and maturity) 2. Availability and quality of documented procedures for borrowing D in foreign markets 3. Availability and degree of involvement of legal advisors D Overall Score D The government’s external financing has followed a prudent approach, focusing exclusively on concessional credits and grants. The medium-term fiscal framework puts a ceiling on overall borrowing, and the budget law requires that all borrowing be on concessional terms. In addition, the fiscal framework assumes a stable level of external aid. The government has been successful in attracting direct budget support, mainly in the form of grants. Around one third of total external funding is provided as budget support, as opposed to more traditional project financing. 5The team asked for the information during the interview, once over the phone, and twice by mail without any success. We, therefore, assume it is probably not available upon request. 17 The government has relatively clear views about the preferences and conditions of different donors, especially in multilateral institutions. The sectoral focus and financing conditions of the different donors are well-known to the authorities. The government is less familiar with some of the bilateral donors, especially non- traditional ones, such as China and India. Approaches to attract funds for projects with more commercial characteristics have also only recently started to be considered. Individual ministries usually bear the responsibility to directly contact the donor community. The MoF, the MPD, and some line ministries work with donors and the DNT-ADP and the MPD have dedicated staff for this function. The Central Bank also still has some staff dedicated to work with some donors. This organizational fragmentation does not create the best environment for maximizing the efficiency of external financing. A formal assessment of the most beneficial/cost-effective way of obtaining donor financing for government expenditures and projects is not conducted, and thus the minimum requirements for the first dimension have not been met. The procedures for external borrowing, including the formation of a negotiating team and analysis of the loan offering, are relatively standardized but are not documented. Moreover, line ministries sometimes circumvent these procedures and negotiate financing packages directly, although the MoF and MPD are eventually informed and must give their approval. For these reasons, Mozambique does not meet the minimum requirement for the second dimension. Legal advisors are incorporated in the negotiating team when it is considered necessary, which means that they may not be involved even at the very end of the negotiating process. This is the case, for example, for IDA and AfDB credits, which are considered standard. Consequently, the government does not meet the minimum requirements for any of the dimensions under this indicator. DPI-10 Loan Guarantees, On-lending and Debt-related Transactions Dimension Score 1. Availability and quality of documented policies and procedures D for approval and issuance of central government loan guarantees 2. Availability and quality of documented policies and procedures D for on-lending of borrowed funds 3. Availability of a debt management system with functionalities for N/R handling derivatives, as well as availability and quality of documented procedures for the use of derivatives Overall Score D The DNT-ADP issues loan guarantees. Relatively few guarantees have been issued to date, and only for domestic loans denominated in local currency. Some guarantees have been called, and hence the loans have become government debt. The budget includes a ceiling on guarantees but does not 18 contain any presentation of projects that would benefit from guarantees or any other form of policies regarding their issue. There is no other documentation of policies and procedures for loan guarantee issuing. The government, therefore, does not meet the minimum requirements for this indicator. There is significant on-lending from the government to state-owned enterprises, and the Budget Law provides detailed policy guidelines for their issuance. The Budget Law specifies that the terms of on-lent funds are decided on a case-by- case basis. It offers guidelines, however, according to the original financing contract. In case the on-lent funds are financed through credits, and donors do not specify the conditions of on-lending, the currency in the on-lending contract must be the same as in the loan contract, and the interest rate must be at least as high as the one that which applies to the original credit. When donors specify the terms, those are respected provided the interest rate covers bank fees. Finally, funds obtained through grants may also be on-lent, but at below-market rates. In the DNT, the Departamento de Contravalores in the Economic Area is responsible for the management of on-lending. The DNT-ADP also on-lends (on rare occasions) to municipalities. The beneficiaries of the on-lending operations often take part in or even initiate contacts with potential donors. A credit analysis is generally undertaken before the contract is signed, but no risk fees are charged. The head of the Treasury signs the on-lending contract after delegation from the Minister. In case of non-payment by the beneficiaries, the Treasury charges penalties and investigates the reasons for non-payment. The on-lending contracts are recorded in an Excel spreadsheet. While the budget law provides detailed policy guidelines for on-lending, no operational guidelines for approval and lending exist. Therefore, Mozambique does not meet the minimum requirements for this dimension. The government does not use derivatives, and therefore the third dimension is not rated. 3.4 CASH FLOW FORECASTING AND CASH BALANCE MANAGEMENT DPI-11 Cash Flow Forecasting and Cash Balance Management Dimension Score 1. Effectiveness of forecasting the aggregate level of cash balances D in government bank accounts 2. Effectiveness of managing the aggregate cash balance in D government bank account(s), including the integration with the domestic debt borrowing program 3. Where the Principal DeM Entity (or the DeM entities) operate its N/R (their) own bank accounts, the frequency of reconciliation of these bank accounts 19 Overall Score D Within the DNT, the Economic section is responsible for budget execution and cash management, which means that they must ensure that sufficient funds are available in the Treasury Account in the BM. The budget execution process has recently been reformed within the SISTAFE, allowing ministries to make requests electronically. The Treasury allocates spending limits to the line ministries based on expenditure forecasts from the individual ministries. The spending limits are equivalent to a transfer of funds from the main Treasury Account to sub- accounts operated by the line ministries in the sense that the transfer of funds cannot exceed the balance in the Treasury Account. The payments are executed directly by the line ministries, but the system conducts automatic checks and controls with the budget and available funds. If the funds are not sufficient, the payment will not be executed, which can lead to delays in payments; nevertheless, the authorities stated that funds are normally available for meeting all payments on a monthly basis. The system works with regular, calendar-based requests for funds but problems with the line ministry forecasts have resulted in a substantial number of ad hoc requests for funds outside the monthly treasury plan. The current budget execution system, which is effectively based on cash transfers, requires large cash balances in order to function properly, caused mainly by the low reliability of the forecasts. The Treasury must have cash balances amounting to a month’s spending in order to release funds on a monthly basis, creating costs of negative carry, and preventing a more efficient management of government funds. The Treasury makes different kinds of consolidated forecasts of cash flows. Every month it issues weekly forecasts for the following month, and every week it issues daily forecasts for the following week. The line ministries provide information for the expenditure forecast, whereas the revenue forecasts are produced internally in the MoF. The quality of the forecasts is not sufficient for the requirements of the Treasury operations. The Treasury shares the forecasts with the BM for liquidity management purposes; however, the BM is not satisfied with the quality of the forecasts. Thus, the minimum requirement for the first dimension is not met 6. The Treasury has large cash balances in their accounts in the BM. At end of 2006 the local currency deposits amounted to 3.8 billion meticais, and foreign currency deposits amounted to 6.8 billion meticais (equivalent to approximately 6The PEFA report notes that “information about the flow of investment expenditure is still weak” and therefore scores a B+ instead of an A, which is the score they give in the cases when cash flow forecasts are updated and monitored weekly. However, as the quality issue is a major concern for both the Treasury and the BM we score this indicator as not fulfilling the minimum requirements.. 20 USD 400 million, or 23% of total government expenditures during that year). The government’s deposits in both local and foreign currency are non-interest bearing. Thus, the minimum requirement for the second dimension is not met. The SISTAFE information system constitutes an integrated payment and accounting system, allowing the Treasury account to be reconciled with the financial accounts on a daily basis. However, because the account used for the vast majority of debt management transactions is not owned by the DNT-ADP, this dimension is not rated. 21 3.5 OPERATIONAL RISK MANAGEMENT DPI-12 Debt Administration and Data Security Dimension Score 1. Availability and quality of documented procedures for the D processing of debt service 2. Availability and quality of documented procedures for debt data D recording and validation, as well as storing of agreements and debt administration records 3. Availability and quality of documented procedures for controlling D access to the central government debt recording/management system and payment system 4. Frequency and off-site, secure storage of debt D recording/management system back-ups Overall Score D The DNT-ADP has a back office, which is organized into two subsections, one for debt recording, and one for payments. The debt recording subsection produces a monthly debt service forecast on a loan-by-loan basis. The heads of the back office and the DNT-ADP both sign this document, which is then forwarded to the Economic area. The DNT-ADP requests on a weekly basis a transfer of funds corresponding to these forecasts, following the normal payment procedures in the SISTAFE. When the payment subsection receives payment advice from a creditor, they compare it against the forecast. If there are differences due to exchange rate fluctuations, a payment order is prepared according to the creditor’s advice applying the date on the billing statement for the exchange rate. Otherwise, the staff investigates the reason for the difference. After verifying the accuracy of the payment advice, a payment order is prepared and the payment advice is attached. The head of the Back Office, the head of the DNT-ADP as well as the Treasury director sign the payment orders, which are then sent to the BM together with the payment advice. In addition a “request for export of capital” (a document requesting the use of foreign exchange) is sent to the BM. In order for the BM to process the payment, the DNT-ADP must debit its sub-account with the appropriate amount in local currency, something that is done electronically through the SISTAFE. A payment officer enters the transaction, which is then verified electronically by the head of the DNT-ADP and by another officer. The BM does not process the payment if there are insufficient funds in the account. 22 These situations used to occur and cause delays in payments. 7 If the DNT-ADP has sufficient local currency in its account the BM processes the payment in foreign currency through SWIFT. The BM confirms the execution of the payment to the DNT-ADP. The DNT-ADP always receives payment confirmation from the central bank within two days after payment, which is then compared against the internal information and entered into the database. T-Bills are registered at the BM in a registry system based on SAP modules. When the T-Bills fall due for redemption, the BM pays the registered owners by crediting their accounts. If banks act as custodians, they manage their own sub- depositaries and pay the final owner. The Central Bank’s Markets Department has manuals for most of its operations. The staff has developed the manuals together with the Administrative department. However, the manuals lack sufficiently-detailed procedures, and therefore do not fully qualify as procedural manuals under the DeMPA. For example, the manuals state that the settlement of T-Bills should take place, but they specify neither which staff member is responsible for the task, nor what procedures must be followed. Thus, since payments are not always made on the due date (see footnote 7), and there are no procedural manuals, the processing of payments does not fully meet the minimum requirements. The debt recording subsection in the back office records external debt and grants using CS-DRMS 2000+. The database contains 1,222 8 loans and grants. The details of each loan are entered in the system from the loan document. In the cases in which the creditor sends a letter stating that the credit is effective, this information is also entered into the system. Disbursements are entered from information supplied by the creditors and the Central Bank. Technicians enter the data, which are then checked by a supervisor who also acts as the administrator of the system. In addition, the debt recording subsection requests information from creditors to update the database on a quarterly basis. The data is also checked with payment orders from creditors. However, these checks cannot be regarded a reconciliation since all disbursement information originates from the creditors. Copies of loan agreements are stored in cabinets in the DNT-ADP together with creditor statements and payment advices. The DNT-ADP is located in a guarded building at the MoF. However, the location is not fireproof. Backups of electronic 7 According to an update by the government in April 2009, these issues have been resolved and the funds are always transferred two or three days in advance, so that payments are not delayed due to insufficient funds. 8 As per information by the authorities. 23 information are stored in a fireproof safe, but they do not include scanned copies of loan agreements. The T-Bill registry system is in electronic book-entry form. It is updated directly from auction results. When secondary trading takes place, the buyer and the seller contact the BM, and once the information is verified, the BM credits the securities account and debits the bank account of the buyer, and vice versa. Manuals exist, but they lack the degree of detail usually included in procedural manuals. Since there are no procedural manuals for the debt recording process, and since the loan agreements and other loan documents are not stored in a fireproof location, the minimum requirements for the second dimension are not met. The system administrator determines access to the CS-DRMS. Besides the system administrator/supervisor, only the technicians have the right to enter and change data. Other users have read-only access. The system administrator/supervisor also checks the data entries and has the right to perform other system related operations like changing ‘cut-off-dates’, follow up system errors and perform backups. He can lock data and prevent technicians from subsequently changing the information that has been verified. These procedures are not documented. There are documented procedures for access to the SISTAFE payment system, but in the absence of documented procedures for access to the CS-DRMS system, the minimum requirements for the third dimension are not met. The debt recording system is subject to daily back-ups. The back-ups are stored in a fireproof safe on the DNT-ADP’s premises. In addition, the BM has a back-up copy of the debt recording system, which is updated regularly. Since the DNT- ADP’s back-up is on its own premises, the minimum requirements for this dimension are not met. The T-Bill registry system is subject to daily back-ups stored at a remote recovery site. Strictly speaking, this does not qualify either since the remote recovery site is not fireproof. DPI-13 Segregation of Duties, Staff Capacity and Business Continuity Dimension Score 1. Segregation of duties for some key functions, as well as the D presence of a risk-monitoring and compliance function 2. Staff capacity and human resource management D 3. Presence of an operational risk management plan, including D business continuity and disaster-recovery arrangements Overall Score D The DNT-ADP is organized as front, middle, and back-office. There is a clear organizational separation between front office and back office, in which the former participates in loan negotiations, and the latter conducts debt recording 24 and debt service payments. The front office coordinates with other government entities, for instance the MoP and line ministries, on the external borrowing process. Within the back office, there is a clear organizational separation between staff undertaking debt recording and staff responsible for debt service payments. Efforts are underway to develop the middle office, which at the moment focuses on domestic debt monitoring, and does not perform traditional middle office tasks, such as risk analysis, risk monitoring, or compliance. The BM’s Market Department, which is responsible for T-Bill issues, is also organized along a traditional front-, back-, and middle-office model, with the individual entities performing the expected tasks. Due to the present absence of risk monitoring and compliance at the DNT-ADP, the minimum requirements for the first dimension are not met. The DNT-ADP has a staff of about 25 professionals, most of them in the back and front offices. The authorities indicated that more staff is needed, and the FSTAP is in the process of providing financial support for additional recruitment. In addition, the staff is not adequately trained, and there are no formal job descriptions. Therefore, the minimum requirements for the second dimension are not met. The BM is better staffed, both in terms of the number and training of its staff. The DNT-ADP does not have any business-continuity or disaster recovery plan, although it was suggested that the manager of the MoF building would have such a plan. Since the DNT-ADP was not aware of the plans and did not participate in their elaboration, the minimum requirements for the third dimension are not met. 3.6 DEBT RECORDS AND REPORTING DPI-14 Debt Records Dimension Score 1. Completeness and timeliness of central government debt records D 2. Complete and up-to-date records of all holders of government C securities in a secure registry system Overall Score D+ The DNT-ADP has a complete set of external debt records. However, the way disbursements are processed at present often leads to delays in accurately recording the amounts outstanding and disbursed. As mentioned earlier, the project implementation unit initiates disbursements without the direct 25 involvement of the MoF. As a result, disbursement information is sent to DNT-ADP by the creditor, which sometimes takes longer than the 3 months that is needed to fulfill the minimum requirement for the first dimension 910. The original records for T-Bills and T-Bonds are kept within the BM and the Stock Exchange, respectively. In addition the middle office of the DNT-ADP currently follows both types of debt. Projects are currently underway to link the Stock Exchange to the debt recording system at the DNT-ADP. There is no complete set of data for domestic debt originating from honored guarantees. This is most clearly seen in the audit report by the TA, which recommends improvements in this area. In addition, records of guaranteed debt appear incomplete and are not readily available. Thus, the minimum requirements for the first dimension are not met. The registry systems have up-to-date and secure records of all holders of government securities. The minimum requirements for this dimension are thus met. The authorities reported that the registries have been audited both internally and externally. The external audit of the registry system is part of the yearly audits, which can only be performed by recognized audit firms that are registered with the MoF. However, there is no evidence that the auditors have looked into the registry system specifically, and therefore a score of “B” cannot be assigned. DPI-15 Debt Reporting Dimension Score 1. Meeting statutory and contractual reporting requirements of D central government debt to all domestic and external entities 2. Meeting statutory and contractual reporting requirements for total N/R nonfinancial public sector debt and loan guarantees to all domestic 9 The PEFA report gives a score of B+, arguing that “Performance with regard to the recording and management of cash balances, debt and guarantees has been stronger. The quality of debt data recording and reporting is high. External debt records are complete, updated and reconciled on a monthly basis through the CS-DRMS system. Domestic debt records are kept separately. A monthly reconciliation is carried out with data considered of high integrity and a comprehensive management report, including statistics on debt service, stock and operations, is produced annually.” We agree in general with the high quality, but have determined that a score of “D” would be more appropriate because of problems with disbursement information mentioned above. 10According to an update provided by the government in April 2009, the DNT-ADP is implementing changes so that Project Implementation Units report disbursements directly to DNT-ADP in order to avoid delays in the recording of disbursements. The situation described above reflects the situation at the time of the mission in March 2008. 26 and external entities 3. Quality and timeliness of the publication of a debt statistical D bulletin (or its equivalent) covering central government debt Overall Score D Debt stock or loan guarantees are not part of the government’s general reporting requirement to the Parliament, and therefore this information is not provided. The TA requests debt stock information as part of the auditing process, but this cannot be regarded as a statutory reporting requirement. The Stock Exchange reports annually on its activities to the Ministry of Finance and the Central Bank. On the other hand, there is no requirement for the government to file a report with the Stock Exchange concerning public debt. The World Bank and the IMF are the only external institutions that require debt reports. While the IMF does not report any problems with debt data, debt reporting from Mozambique does not meet the World Bank’s Debtor Reporting System’s requirements, likely due to the recent transfer of reporting responsibilities between the BM and the DNT-ADP. Thus, the minimum requirements for the first indicator are not met. With the exception of specific requests from the TA, no internal or external entities require reporting of non-financial public sector debt or loan guarantees. Consequently, the second dimension cannot be assessed. The BM publishes a statistical bulletin that includes the debt stock at the end of the period, and debt service on a monthly basis. The last bulletin was published in September 2007. The amount of T-Bills outstanding can be obtained from the BM website, but the T-Bonds outstanding are published in a bulletin board that is only available to market participants. The DNT-ADP does not currently produce a statistical bulletin, although its annual report of activities does contain some debt data. The third dimension, therefore, does not meet the minimum requirements and merits a score of “D”. 11 11According to an update provided by the government in April 2009, TA in relation with the Financial Sector Technical Assistance Program (FSTAP) has advised the DNT-ADP on producing standard debt reports. As a result it is planned that the DNT-ADP publishes quarterly and annual statistical bulletins. The resident advisor will assist the government for the publications during the period 2008-2010. In addition, the government informed us that the DNT-ADP now fulfils its mandatory and contractual reporting requirements for both the government and external parties (IDA and IMF) producing quarterly reports on disbursements and debt stocks. The situation described above reflects the situation at the time of the mission in March 2008. 27 4. CONCLUSIONS AND NEXT STEPS Although this report identifies a number of weaknesses, it is important to emphasize the evolution of debt management operations in Mozambique, and place the ratings in the context of an ongoing reform program that has produced significant results. Notably, debt management functions have recently been moved from the Central Bank to the Treasury, and a process is underway to organize operations in modern, front-, back-, and middle-office functions, as well as to put in place a debt recording system that consolidates information from all entities involved in debt management. Moreover, within the FSTAP program, the government has been working on producing a credible and well- designed debt strategy, as well as a statistical bulletin for debt that will consolidate information already available in various forms. While the assessment recognizes these important points of strength, the many areas where the government nonetheless fails to meet the minimum requirements for effective performance underline the critical importance of maintaining and strengthening the reform momentum. Quick improvements leading to meeting minimum requirements for effective debt management (score “C”) could be reached with selective interventions in different areas identified in this report. Examples include the following: • The managerial structure (DIP-2, dimension 1) would improve if the line ministries would notify the DNT-ADP in time about disbursements. Timely information about disbursements would also improve the coordination with fiscal policy (DPI-6, dimension 1) and lead to complete records of central government debt (DPI-14, dimension 1). • Important DeM activities, including the debt stocks and loan guarantees could be included in the annual report for the Ministry of finance (DPI-4, dimension 1). • The government would meet the minimum requirement for coordination with monetary policy (DPI-7, dimension 1) if the BM announced whether T- Bills issues are for monetary purposes or for government financing. • The government would meet the minimum requirements for the first dimension for domestic borrowing (DPI-8, dimension 1) if a borrowing plan for T-Bills issues is published. The second dimension would be met if market information would be available on a public website or on request. In addition, the assessment emphasizes the need to finalize the debt strategy, the execution of which could then be evaluated in an annual report, which could form the basis for a performance audit. Important improvements can also be made with respect to cash management–e.g., by producing reliable cash flow forecasts that meet the requirements for budget execution and monetary policy. 28 The DNT-ADP does not reconcile creditor disbursement information with its own information regarding payments to bank accounts. For many countries, such an exercise is difficult since the Treasury does not control the bank accounts to which disbursements are made. However, in Mozambique some credits take the form of budget support, which are deposited in Treasury bank accounts at the Central Bank. It should therefore be possible to update the debt records with payment information from the Treasury, and reconcile the records with information from creditors regarding disbursements. 29 ANNEX 1 – LIST OF MEETINGS Sr. Antônio Laíce, Director of the Treasury, MoF Sr. Rogério Nkomo, Deputy National Director of the Budget, MoF Sr. Adriano Ubisse, National Director, Investment and Cooperation Directorate, MPD Sra. Piedade Macamo Matavela, Deputy Director of the Treasury, Head of the Public Debt Area, MoF Sra. Amélia Mutemba, Deputy Director of the Treasury, Head of the Economic Area, MoF Sr. Arginaldo Andrice Muandula, Head, Cooperation and On-lending Department, DNT-AE, MoF Prof. José Chichava, Manager, Financial Sector Technical Assistance Project (FSTAP), MoF Sra. Silvina de Abreu, Manager, Research and Statistics Department, Bank of Mozambique Sra. Carla Marina dos Anjos Timóteo, Manager, International Department, Bank of Mozambique Sr. Markets Department, Bank of Mozambique Sr. Luís Herculano, General Secretary, Tribunal Administrativo Sr. Moisés Gomes Amaral, Tribunal Administrativo Sra. Rosa Raul, Tribunal Administrativo Sr. Jorge Marcelino, Internal Auditor, MoF Sr. João Pedro Rodrigues, Bolsa de Valores de Moçambique Sr. Rodrigues Paruque, Bolsa de Valores de Moçambique Ms. Karin Metell Cueva, Economist, Swedish International Development Agency Sr. Augustinho Uísque, Unit Chief, Debt Recording and Debt Service Payments, DNT-ADP, MoF Sr. Henrique Hosseia Manjate, Head of Recording and Debt Service Payment Section, DNT-ADP, MoF WB78007 V:\PRMED\DeMPA Reports\DeMPAMozambiqueFinal_EN.doc 8/20/2009 4:33:00 PM 30