Public sector reforms and sovereign debt management: Capital market development as strategy?

•Reliance on strategy statements and ex post review weakens legislatures’ control.•Accruals-based appropriations largely ignore government financing.•Sovereign debt management via delegated powers has expanded financing activities.•Governments’ support for capital markets includes extensive participation.•NZ government leverages public assets, borrows to invest in capital markets.

The reform of sovereign debt management has largely escaped attention in the accounting literature on public sector financial management reforms. The application of business thinking to the public sector has meant conceptualising the sovereign debt management function as a corporate-style controller function, applying to sovereign debt management the asset and liability management techniques developed in the banking sector. Accruals-based appropriations and outcomes-focused strategy statements weaken a legislature's power of control over the executive government and divert attention from the control of public finance, which increasingly appears to be delegated to the executive government. Wider application of the asset and liability management techniques adopted for sovereign debt management seems to support an emergent capital market development strategy, facilitated by increasing government participation in capital markets. The New Zealand government's financial statements help to illustrate these developments and show the extent of government participation in capital market activities involving large amounts of public money and leveraging of public assets. Financial control and accountability is not achieved by relying on strategy statements, objectives and ex post review.