Part 1: Introduction

Effectiveness of the New Zealand Debt Management Office.

The New Zealand Debt Management Office (NZDMO) is an operating unit of the Treasury, within the Treasury’s Macroeconomic Group. NZDMO is responsible for the efficient management of the Crown’s debt and associated financial assets within an appropriate risk management framework. NZDMO’s strategic objective is to maximise the long-term economic return on the Crown’s financial assets and liabilities in the context of the Government’s fiscal strategy.

Our audit focused on the extent to which NZDMO is carrying out its activities effectively and to confirm that NZDMO’s policy parameters are consistent with its governing legislation and ministerial delegations.

Our audit objectives and performance expectations

Our overall objective was to determine NZDMO’s level of performance, under the authority of the Minister of Finance, in managing the Crown’s public debt and financial asset portfolios.

We compared NZDMO’s policy framework to the following internationally recognised guidelines:

  • Organisation for Economic Co-operation and Development (OECD) overview of advances in the risk management of government debt;
  • Bank of International Settlements (BIS) principles for interest rate and liquidity management; and
  • to a lesser extent, the relevant sections of the International Monetary Fund (IMF) guidelines for public debt management.

We also compared NZDMO’s operational activities to:

  • OECD central government debt statistics;
  • other similar entities, such as the Australian state/Commonwealth borrowing authorities (CBAs); and
  • similar financial institutions or corporate entities that undertake financial risk management activity within Australasia.

How we conducted the audit

We sought expert technical assistance with the audit given the specialised technical functions of NZDMO. Assistance was provided by experts from KPMG appointed by the Auditor-General under section 33(1) of the Public Audit Act 2001 to conduct a performance audit on his behalf under section 16(1) of that Act.

The audit was conducted by reviewing key NZDMO and Treasury documents; in particular, NZDMO’s Portfolio Management Policy (PMP) and associated technical appendices. Other key documents included both recent and historical business case requests from NZDMO to the Minister of Finance for the commencement or suspension of transactions in new instruments and new currencies and policy alterations. We also reviewed NZDMO’s management reporting documents, supplemented by specific data and analytical requests to NZDMO.

Stakeholders we interviewed included:

  • NZDMO management and staff ;
  • NZDMO’s Advisory Board;
  • Treasury senior management with direct responsibility for NZDMO; and
  • the Reserve Bank of New Zealand (RBNZ) and selected financial market participants.

Outside the scope of the audit

We have made some observations and comments in relation to Crown financial policy in terms of the effect on NZDMO’s activities. However, we have sought to avoid Crown-wide financial policy considerations not related to NZDMO.

The IMF and World Bank guidelines for Public Debt Management require sound macroeconomic and fiscal policies to support public debt management better practices. Macroeconomic and fiscal strategies are outside the scope of the audit. They are therefore referred to only by way of background and direct effect on NZDMO.

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