The central government borrows in the financial markets to meet its funding requirements. It is the total outstanding amount of these loans that is referred to as central government debt. Danmarks Nationalbank manages central government debt, which means that if the central government needs to borrow money, Danmarks Nationalbank finds creditors in the market who will lend the money to central government.
The Minister of Finance has the overall and political responsibility for central government debt, and is authorised by law to raise loans on behalf of central government.
The Danish government debt policy is based on internationally recognised principles for sound central government debt management, including openness, credibility, clearly defined objectives and a clear division of responsibilities.
Responsibilities of Government Debt Management
In Denmark, Danmarks Nationalbank manages the central government debt on behalf of the Minister of Finance.
Government Debt Management must ensure that the objectives of the government debt policy are met. The focus is therefore on maintaining a low refinancing risk by covering funding requirements well in advance, ensuring a broad investor base and having a high level of liquidity reserves. Danmarks Nationalbank ensures this by performing the following tasks:
- Preparing an issuance strategy that meets the annual funding requirements on the basis of the Finance Act and input from the Ministry of Finance.
- Issuing government bonds and T-bills to cover the government’s funding needs. The funding requirement is determined by the central government’s current revenue and expenditure as well as loans that fall due.
- Monitoring and managing the risk on the entire central government debt portfolio.
- Aiding in ensuring a transparent and liquid market for Danish government securities through its agreements with primary dealers to trade Danish government securities.
- Administering the funds in the two government funds Innovation Fund Denmark and the Fund for Better Working Environment and Labour Retention
- Managing on-lending and government guarantees to government-owned companies.
- Ensuring, through the central government’s issuances, that there is an adequate balance in the central government’s account to cover the government’s payments.
The functions of Government Debt Management are divided between front, middle and back offices.
The separation of functions and clear procedures reduce operational risks and ensure a clear distribution of responsibilities. This also facilitates internal control. The placement of the tasks at Danmarks Nationalbank makes it easier to monitor the interaction between government debt policy, monetary policy and financial stability.
This is consistent with the so-called Stockholm principles, i.e. IMF’s recommendations for government debt management.
Formulates government debt policy and prepares proposals for loan strategies while handling the operational part of government debt policy. This comprises the issuance of government securities, including facilitating auctions, buybacks, securities lending and swap transactions. It also determines market terms for on-lending.
Middle office and compliance
Are responsible for the risk management of central government debt. In addition, it follows up on whether the guidelines for the front office with regard to issuances, buybacks and swap transactions are consistent with the agreed strategies.
Settles payments concerning central government debt, including the servicing of debt and swaps. Government Debt Accounting prepares the national accounts together with the Ministry of Finance.
The government debt area is audited by Danmarks Nationalbank’s auditors on behalf of Rigsrevisionen, the national audit office of Denmark.
Danmarks Nationalbank’s auditors
Ascertain that the government debt accounts give a true and fair view, i.e. that they are without significant errors and omissions. In addition, Rigsrevisionen may assess whether the government debt is managed in an appropriate way.