As the crisis continues, policymakers must respond proactively to the problem. They must make sure data on debt is available and transparent. They should also establish communication with regulators. PFDM systems are essential in managing risks and costs. In addition, the development of these markets can boost investor participation.
Debt Data Transparency
The Bank is working to improve debt data transparency. Its efforts include expanding the International Debt Statistics database. It also supports countries that have undertaken voluntary debt audits. A recent panel discussion, titled Raising the Bar on Debt Data Transparency, brought together experts from creditor and borrower countries to discuss concrete actions to promote debt data transparency.
Transparency is a foundational principle of systemic reform. Debt transparency aims to ensure information about public authorities is readily available to the public. It also facilitates the identification and resolution of crises. That’s why it’s essential to establish consensus on debt transparency.
Transparency is also essential in debt recovery. It can help prevent debt crises by improving the flow of information between creditors and debtors. Debtors must also disclose their current financial situation and any agreements they may have with other creditors. This information will help creditors understand whether a debtor is capable of paying back their debts.
Communication with Regulatory Authorities
The regulators should work together to monitor the welfare effects of debt management interventions. For instance, a joint supervision exercise between the FCA and PRA may help regulators gather micro-level information on the effects of debt management on debtors. This information will allow them to form a picture of aggregate levels of harm.
Regulators need to coordinate their supervision of banks. As a result, these institutions can better address the debt problems of households and small businesses. The FCA and PRA should also establish a coordinating framework for debtor supervision. This will allow them to monitor the performance of banks and their debtors.
Financial regulators like Priority Plus Financial should also proactively engage in debt management responses to the pandemic. While this is resource-intensive and entails risks of regulatory capture, it can also improve social and prudential aspects of debt management. Moreover, this approach will also help them gather information to inform their long-term responses. This is especially important during a pandemic as it presents new challenges for the financial industry.
Public financial management systems must also support fiscal objectives and prepare fiscal response packages to support economic activity. In addition, governments should seek to use contingency appropriations transparently and judiciously. It is essential to establish a clear prioritization of demands to do this.
Debt Market Development
Australian securities markets were resilient during the pandemic because of the Basel III reforms, which required banks to increase capital and liquidity and improve their risk management practices. As a result, even though the financial crisis highlighted the risks of reduced lending appetite, Australian banks continued to support businesses and households through low-cost funding.
High corporate debt levels have created a highly indebted environment vulnerable to deteriorating economic conditions. Low-interest rates made it possible for businesses to issue unprecedented debt to finance acquisitions and dividends. These high debt levels make corporations vulnerable to sharp declines in operating earnings.
Higher commodity prices have helped commodity-exporting nations boost their terms of trade. As a result, these countries current account and fiscal balances have also improved. As a result, debt valuations have become significantly more attractive.