THE WORLD BANK AND INTERNATIONAL MONETARY FUND

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.download