Building Strong Foundations: Legal and Institutional Instruments for Effective Public Debt Management
At a recent three-day workshop facilitated as part of an Asian Development Bank (ADB) and Linpico initiative, I introduced a conceptual framework that explores the legal and institutional foundations of effective public debt management (PDM). Designed to support reflection and dialogue among government officials, parliamentarians, and debt managers, the framework highlights five interdependent layers that shape how public debt is governed: constitutional provisions, primary legislation, secondary legislation, institutional performance, and informal or emerging practices.
Each of these layers plays a unique role in guiding the way governments borrow, manage, and repay public debt. When working in harmony, they form a system that supports sustainable debt management and reinforces transparency and accountability. When fragmented or misaligned, they create gaps that increase fiscal risk and reduce public trust. The framework helps map not only what exists but how these elements interact in practice.
1. Constitution: The Supreme Legal Anchor
At the top of the legal hierarchy, the Constitution provides the foundational principles for public debt management. It may establish who has the authority to borrow, require parliamentary approval for loans, or enshrine high-level fiscal rules such as debt ceilings or borrowing limits. However, in many countries, there are gaps between constitutional provisions and the enabling primary legislation. For example, while a constitution might require parliamentary approval for all public borrowing, primary laws may be vague or silent on how that approval is to be operationalized. Bridging these gaps is essential to ensure that constitutional safeguards are translated into enforceable and actionable rules.
2. Primary Legislation: Defining the Framework
Primary legislation—such as a Public Debt Management Act or Public Finance Management Act—gives legal force to debt management principles. It spells out institutional mandates, borrowing procedures, and reporting requirements. Good primary legislation should define who may borrow on behalf of the state, under what conditions, and with what oversight. It often sets the stage for greater transparency by requiring the publication of debt strategies, reports, and audits. However, to be effective, these laws must be clear, up-to-date, and aligned with both constitutional provisions and international best practices.
3. Secondary Legislation: Operationalizing the Rules
Secondary legislation—including regulations, decrees, and procedural guidelines—translates primary legislation into actionable processes. While primary laws may define the broad responsibilities of a debt management office, secondary legislation outlines the specific procedures for debt recording, risk analysis, and internal coordination. Because it is more easily amended than primary legislation, secondary legislation offers flexibility to respond to evolving practices and emerging risks. It is especially critical for ensuring consistency and clarity in how debt is contracted, reported, and reviewed.
4. Institutional Performance: From Law to Action—and Back Again
Laws are only as effective as the institutions that implement them. Institutional performance refers to the ability of debt management offices, ministries of finance, audit institutions, and parliaments to carry out their roles in the debt management cycle. This includes skills, staffing, coordination mechanisms, information systems, and the routine generation and use of debt data. Importantly, the relationship is not one-way: institutional performance can and should inform legal reform. For instance, if debt managers find existing procedures unworkable or encounter coordination gaps with other agencies, their experience should feed back into efforts to revise and strengthen both primary and secondary legislation. This feedback loop ensures that the legal framework remains relevant, effective, and grounded in real-world conditions.
5. Informal or Emerging Practices: Innovation in Action
Not all progress is codified. Informal or emerging practices—such as voluntary debt transparency portals, parliamentary debt caucuses, or public consultations on borrowing decisions—can help close accountability gaps where formal mechanisms are weak or still developing. These practices, while not legally binding, can foster a culture of transparency, serve as pilots for future institutionalization, and build public trust in debt management. Over time, what begins as informal can be codified into formal rules and procedures, contributing to a more robust system.
Conclusion
This layered approach to assessing public debt management proved useful in the ADB/Linpico workshop context, where participants applied it to identify gaps, opportunities, and reform priorities in their respective countries. It served as both a diagnostic tool and a conversation starter—encouraging participants to think beyond legal texts and consider the importance of institutional capacity, coordination, and innovation. Ultimately, effective debt management depends not only on laws and procedures, but on the ability of institutions to apply them—and on the political will to adapt them as new challenges emerge.