Debt and Related Financial Asset Management (NZDMO)
Scope of Appropriation
Operational management of the Crown's sovereign-issued debt portfolio, associated financial investments (including departmental cash management) and lending and derivatives transactions with government-related entities.
Output Class Description
The overall result in this area is effective and efficient debt and financial asset management. This includes issuing government bonds, Treasury Bills and Kiwi bonds, managing overall net cash flows and managing some of its interest-bearing assets within an appropriate risk management framework. The NZDMO also provides advice to the Government on the policy issues that have strategic importance to delivering these results.
Significant Work Completed During 2008/09
- NZDMO's work during 2008/09 was dominated by the international financial markets crisis and the widening fiscal deficit position.
- During the year debt issuance was increased to its highest levels since 1991/92. Bonds issued under the domestic borrowing programme were increased twice from $3.4 billion (announced in Budget 2008) to $5.5 billion (by year end).
- A range of measures was introduced to support the increase in debt issuance, including increasing tender frequency from fortnightly to weekly, the introduction of tap tenders and reverse tap tenders and the introduction of a new long-dated bond.
- NZDMO also adopted a more proactive approach to investor relations and marketing. Relationships with the credit rating agencies were a particularly high priority in the face of the deteriorating fiscal position.
- Significant policy work included advice on the funding profile for the increase to the borrowing programme, and advice on the introduction of the Wholesale Guarantee Facility.
- In volatile market conditions, NZDMO achieved a record value-added result of $68 million for the tactical portfolio. This was driven by the flight to quality boosting demand for Crown securities, and an increase in both value and volume of foreign exchange risk management activity on behalf of clients. (The value-added figure is derived from NZDMO's management reporting, which is calculated on a different basis from the financial statement reporting.)
- Owing to extreme market volatility, portfolio risk increased significantly over the year. The average monthly VaR figure for the tactical portfolio in 2008/09 was $714,000. This is more than double the figure for last year, but remains well within the policy limit of $14 million. Further information on this is provided on pages 21 and 22.
- Market volatility also resulted in a number of instances where NZDMO exceeded its credit exposure limits, owing to exchange rate movements causing large fluctuations in asset valuations from day to day.
- No credit-related losses were realised - a notable result given credit market conditions during the year.
- NZDMO processed over 27,000 transactions, with total cash-related payments of around $290 billion.
| Performance Dimensions | Performance | ||
|---|---|---|---|
| All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations. |
Not assessed during 2008/09. Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work. The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance. |
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| Compliance with risk management policies and parameters for portfolio management and debt issuance. Compliance expectations: 100%. |
Not achieved. Extreme market volatility gave rise to large overnight swings in the value of NZDMO's asset portfolio. As a result there were a number of instances where NZDMO exceeded its credit exposure limits and liquidity cover requirements (six credit breaches and one liquidity breach). NZDMO's risk management target was not met in relation to compliance breaches. |
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Value added from management of the Crown's debt and related financial assets to meet targets for tactical portfolios. Target: Met. Agreed targets for 2008/09 were:
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Achieved. Value added was:
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Average market risk in tactical portfolios at less than 10% of the overall monthly VaR limit agreed with the Minister of Finance. Target: Levels not exceeded. For 2008/09 the agreed level was $14m. |
Achieved. Average monthly VaR for the tactical portfolios was $714,000. |
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| Annual cost of NZDMO settlement errors not to exceed the limits specified in the Vote: Finance Results and Outputs Plan. Target: Settlement errors do not exceed 12 and do not cost more than $10,000 in total during the financial year. |
Achieved. Two NZDMO settlement errors occurred, at a cost to the Crown of $2,775. |
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| Cost | |||||
|---|---|---|---|---|---|
| 2008/09 Actual $000 |
Supp. Estimates - Voted $000 |
Main Estimates $000 |
2007/08 Actual $000 |
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| Expenses | 8,714 | 9,338 | 9,001 | 8,080 | |
| Funded by: | |||||
| Revenue Crown | 8,545 | 9,177 | 8,850 | 7,921 | |
| Other Revenue | 169 | 161 | 151 | 159 | |
Actual 2008/09 output class expenditure was $624,000 or 7% under Supplementary Estimates budgets owing to vacancies and cost savings.
The appropriation for this output class was increased by $337,000 in the Supplementary Estimates largely owing to a higher demand for Kiwi bonds, resulting in a corresponding increase in commissions to agents.
