About Government Debt Management
The overall objective of the government debt policy is to cover the central-government financing requirement at the lowest possible long-term borrowing costs, while taking the degree of risk into account.
Furthermore, the aim is to facilitate the central government’s access to the financial markets in the longer term and to support a well-functioning domestic financial market.
The Minister of Finance is authorised by law to raise government loans. In addition, the Minister of Finance holds the overall political responsibility for central-government borrowing and debt, including relations with the Folketing (Parliament). In most countries, management of the central-government debt is organised under the ministry of finance or a separate government debt management office. In Denmark, the central-government debt is managed by Government Debt Management at Danmarks Nationalbank on behalf of the Ministry of Finance. Its tasks and organisation correspond to those of government debt management offices in other countries. The distribution of responsibilities is specified in the Agreement on the division of work in the area of government debt between Danmarks Nationalbank and the Ministry of Finance.
The internal structure of Government Debt Management at Danmarks Nationalbank reflects international standards and recommendations. Government Debt Management is divided into front, middle and back offices with separate functions. A clear separation of functions and clear procedures reduce operational risks and facilitate internal control.
|Diagram 1: Organisation|
The tasks of Government Debt Management, among others, include
- Issuance of government securities to cover the central government's borrowing requirement
- Management of the assets of the three government funds included in the central-government debt
- Management of risk on the central-government debt portfolio
- Liquidity management of the central-government account
- Management of access to re-lending and government guarantees for a number of companies
- Establishment of a framework to ensure a well-functioning market for government securities, e.g. through market-making agreements with primary dealers in Danish government securities
- Advising the Ministry of Finance on issues concerning other financial risks, e.g. interest-rate risk in relation to the financing of subsidised housing
- Participation in international cooperation in the area of government debt management, including the OECD's Working Party on Government Debt Management and the Economic and Financial Committee on EU Government Bonds and Bills Markets
- Advising other government debt management offices.
The statutory basis for central-government borrowing is set out in the " Act on the authority to raise loans on behalf of the central government" of 1993, which authorises the Minister of Finance to raise loans on behalf of the central government. The maximum amount of total outstanding debt was revised to DKK 2,000 billion in May 2010. This amount is the upper limit for domestic and foreign debt. In connection with current debt management, the Minister of Finance is moreover authorised to enter into swap agreements and other financial transactions.
The distribution of responsibilities between Government Debt Management and the Ministry of Finance is governed by the agreement on the division of work in the area of government debt between Danmarks Nationalbank and the Ministry of Finance.