The Analytical Tool (AT) is an integral part of the MTDS Toolkit, developed to provide a quantitative analysis as input to the MTDS decision-making process. The AT is a spreadsheet-based application that allows projecting cash flows as a function of: (i) existing debt; (ii) macroeconomic assumptions, i.e. the primary balance; (iii) new borrowing strategies; and (iv) financial variables, including interest rates and exchange rates. The tool then simulates different cash-flows under various scenarios. The output of the tool is a quantification of the costs and risks associated with a particular debt management strategy.
The AT facilitates the quantification of costs and risks for each strategy under consideration. By illustrating the consequences of following a particular strategy under various scenarios for macroeconomic and market variables, it gives insight into the key vulnerabilities embedded in the specific strategy under consideration. The output, generated by the AT is a number of cost and risk indicators, for example annual interest payment-to-GDP and the nominal stock of debt-to-GDP. Risk is measured in terms of the increase in cost, given a particular macro and market scenario, relative to the baseline. 1 The AT different cost and risk indicators, allow countries to focus on those measures most relevant for their needs.
The AT has been designed to show the details of all cash flow calculations at every step of the process. Intermediate cash flows as well as Excel functions are explicitly shown at every stage, allowing the user to track the assumptions underlying the analysis. Thus, the AT is not only useful for the quantitative analysis underlying a debt strategy, but is also a useful device for building capacity in the debt office. Finally, once the desired debt management strategy is implemented, the AT can be used to measure adherence to the strategy, and re-evaluate the cost-risk alternatives should there be a change in market conditions or the authority’s risk preference.
Contents
I. Introduction
II. General Architecture
III. Setup of Initial Conditions and Data Preparation (Model.xls)
- A. Input Parameters (worksheet Inp_param)
B. Existing Debt Data (worksheet Inp_XData)
IV. Baseline Assumptions
- A. Macroeconomic Variables (worksheet Inp_Macro)
B. Yield Curve and Credit Risk Premium
C. Future Market Rate (worksheet Inp_Scen)
V. Financing Strategies (Inp_Strg)
VI. Output (Out_ANNUAL)
VII. Financing Strategies (strategy File.xls)
VIII. Alternative Scenarios (ScenarioFile.xls)
IX. Scenario Analysis (ScenarioAnalysis.xls)
- A. Spreadsheet Structure
B. SummaryOutput Worksheet
Tables
1. Types of Debt Instruments
2. Description of Spreadsheet
3. Command Buttons
Figures
1. The General Schematic of the AT
2. Schematic of Model.xls
3. Frequency and Horizon of Data
4. Miscellaneous Information Table
5. Currency Information Table
6. Currency Basket Table
7. Borrowing Instruments Table
8. Inputting Instrument Using Loan by Loan Data
9. Principal Repayment Cash Flows
10. Interest Rates and Spreads
11. Input of Macroeconomic Variables
12. Input of Yield Curve Data and Inflation
13. Market Rates in Inp_Scen Worksheet
14. The Input Strategy Worksheet (Inp_strg)
15. Schematic Description of Defining a Financing Strategy
16. Structure of Stress Worksheet
17 Layout of Input Worksheet
18. Main Menu Worksheet to Change Model Parameters
Boxes
1. Uncovered Interest Rate Parity (UIP) and Term Structure
2. An Example of Deriving the Domestic Currency and Domestic U.S. Dollar Yield Curves18
Appendixes
I. Running Model SetUp
II. Table of all Worksheets in the Workbook Model.xls
III. Calculating the Domestic Yield Curve
Appendix Tables
4. Worksheets in the Model
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Developing A Medium-Term Debt Management Strategy (MTDS)
