Facing rising interest rates and growing financing needs, WAEMU countries are increasingly adopting medium-term debt management strategies (MTDS) to balance costs and risks. UMOA-Titres, responsible for the main public securities market in the region, is enhancing the capacity of stakeholders to ensure healthy debt management.

On June 11, 2024, UMOA-Titres held a webinar on the MTDS, led by macroeconomist Arouna Sow. The webinar, which attracted over 100 participants, highlighted the importance of MTDS for managing public debt in the WAEMU region.

Sow explained that the strategy structures state debt portfolios by balancing costs and risks over three to five years. "Public debt management involves developing and implementing a strategy to mobilize necessary financing at minimal cost while maintaining a prudent level of risk," he said. The strategy also aims to stimulate the development of an efficient public securities market.

In an environment marked by uncertainties and growing risks, effective public debt management is crucial for WAEMU member states. UMOA-Titres plays a key role in supporting these states in developing and implementing MTDS, according to Sow.

In a detailed presentation, Sow outlined the MTDS development process in the region, emphasizing its use in effectively managing debt portfolio risks. He described the main steps: analyzing the existing portfolio, defining MTDS targets, operationalizing the strategy, and assessing its impact on the public securities market.

Analyzing the debt portfolio is essential to identify the optimal composition and strategies. "The goal is to mobilize the desired amount of financing at the lowest cost, consistent with an acceptable level of risk," he noted.

Risk Mitigation and Financing

To mitigate risks, various measures can be adopted and are frequently used by issuers in the region. For refinancing risk, Sow mentioned, "active debt management operations, such as early buybacks of non-matured debts, can be conducted." To manage interest rate risk, he recommended lengthening maturities and using derivatives, such as interest rate swaps. For exchange rate risk, borrowing in the primary currency of export revenues and using currency swaps are advised.

States have multiple financing sources, including multilateral and bilateral loans, commercial credits, and international and domestic market issuances. "Diversifying financing sources helps reduce exchange rate risk and compensate for limited access to external financing," Sow added.

Operationalizing MTDS involves setting medium-term targets for managing public debt. An example showed that "increasing external debt and mobilizing concessional resources can improve the debt profile."

To improve MTDS implementation, developing the public securities market (PSM) in the WAEMU region is essential, Sow demonstrated. A robust PSM allows for diversified debt financing sources, reduces exchange rate risk, and compensates for limited external financing access. He indicated that UMOA-Titres encourages states to publish issuance calendars, provide regular economic and financial updates, and prioritize auction-based issuances to enhance credibility and transparency. "Transparency in the periodic publication of economic and financial information strengthens investor confidence," Sow emphasized.

Additionally, UMOA-Titres offers training sessions and seminars to bolster the technical skills of debt managers. "We work closely with states to help them design, implement, and review their debt management strategies," he assured.

The webinar also provided a platform for the BCEAO-created entity to highlight the challenges and prospects of public debt management in the region, especially amidst tightening monetary conditions. The presenter called for strengthening National Public Debt Committees (NPDC), which he deemed essential for coordinating debt policies with fiscal and monetary policies.