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Assisting Middle Income Countries in Their Quest to Turn ‘Billions to Trillions’

Story Highlights

  • The poverty landscape has changed dramatically in the last two decades, with three-quarters of the poor now living in MICs.
  • MICs face the double pressure of rising demand for infrastructure and limited technical capacity for borrowing.
  • The World Bank Treasury Government Debt and Risk Management (GDRM) program is uniquely designed to help MICs develop debt management capacity in a programmatic fashion, enabling them to build resilience to fiscal shocks.

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Government Debt and Risk Management Program

Public Debt Management at the World Bank Treasury

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Jakarta, Indonesia| Photo Credit: Alamy

Washington, Oct 25, 2016 – Seventy-three percent of the world's poor now live in middle-income countries (MICs) - a striking change from just two decades ago, when 93 percent lived in low-income countries. In this changing landscape, eliminating extreme poverty and boosting shared prosperity takes on a new meaning.

Lifting people out of poverty in MICs brings unique challenges

One factor is rapid urbanization, with young people concentrating in urban areas to exploit new economic and social opportunities. As cities become engines of growth, population demands more infra-structure, access to education, health and other programs. Met adequately, these demands fuel further growth in a virtuous circle.

Know-how bottlenecks and distinctive financing needs

One of the financing sources for infrastructure programs is government borrowing. As countries achieve middle income status, concessional funds become limited. This means they must learn to access commercial lenders and international financial markets, as well as develop a debt market at home.

With technical help, MICs are better positioned to turn billions into trillions.

  • Potential to create budgetary savings through improved debt management: On a consolidated basis, MICs manage $11 trillion in debt. Even a one-basis-point reduction in debt interest costs would result in $1.1 billion of savings. By building institutional capacity and better managing debt they can create space in their budgets, which can be reinvested in infrastructure and social programs, reducing poverty.
  • Potential to develop a financial marketplace that will be the backbone of the economy: MICs have the potential for developing liquid and efficient government securities markets. With targeted technical assistance they can learn how to build a sound yield curve by issuing benchmark bonds and new instruments. They can improve market efficiency by establishing primary dealership systems, initiating electronic trading platforms, better communicating with investors and government agencies, and increasing reporting standards and transparency. With other financial institutions following the government’s lead in the market place and using the yield curve as the reference rate for lending, they will be motivated to issue innovative products and provide liquidity in the secondary market, increasing market confidence and resulting in economic growth.
  • Potential to become more effective and attractive partners for PPPs: A government that has the capacity and framework to assess and manage risks and has developed the expertise to deal with issues such as privatization and policy making for SOEs and PPPs can better encourage the private sector to partner on government-led initiatives.

But funds are limited for providing targeted debt and risk management technical assistance to MICs.

The World Bank Treasury Government Debt and Risk Management (GDRM) program, is uniquely designed to support MICs from A to Z: From diagnostic work to reform plans and implementation.

In 2011 the World Bank Treasury established the Government Debt and Risk Management (GDRM) program. Initially funded by the Swiss State Secretariat for Economic Affairs (SECO), the program is providing MICs with programmatic technical assistance from diagnostic work to reform plans and implementation. The program’s goal is to reduce vulnerability to financial shocks by improving public debt and risk management. For successful implementation, Treasury collaborates closely with other Bank units, in particular, teams from Equitable Growth, Finance and Institutions to deliver the program.

Tailor made for each country’s context

“We partner with each country for three to five years” says Coskun Cangoz, head of the program. “As countries have to develop their own solutions, the team is there to share sound practices, to reach out to expert practitioners across the world on behalf of the client, and to provide guidance and training. We help country practitioners develop and implement their unique solutions.”

Peer-to-peer approach enabling clients learn from each other

One of the key program tools is peer-to-peer knowledge sharing. The program connects countries around the issues they face, such as cost and risk modeling or contingent liabilities, and connects countries with extensive experience on certain issues, with others that are at the beginning of the process, facilitating South-South dialogue.

Focused on outcomes: technical assistance from diagnostic to implementation

When necessary, the team starts with a diagnostic of the debt management operation, but the emphasis is on supporting the client all the way through to implementation. “We are focused on outcomes rather than outputs,” says Rodrigo Cabral, Team Task Leader for Colombia. “In Colombia, in addition to missions and training sessions, we embedded a resident expert within the ministry of finance for one year to achieve the desired outcome.”

Celebrating five years of impact and outcomes

On Oct. 18, 2016, the GDRM program celebrated its fifth anniversary, having grown from two countries in 2011 to 10 in 2016 hosting over half a billion people, 60 million of which continue to live in poverty.

Although the direct impact of a sound debt and risk management system on reducing poverty is hard to tease out, it is an effective implement in the World Bank’s toolbox to help MICs build resilience to financial shocks and improve shared prosperity.