Auditing Public Debt Using Risk Management

Andrea Consiglio (), Akis Kikas (), Odysseas P. Michaelides () and Stavros Zenios
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Andrea Consiglio: Department of Mathematics and Statistics, University of Palermo, I-90128 Palermo, Italy
Akis Kikas: Audit Office of the Republic of Cyprus, Nicosia, Cyprus
Odysseas P. Michaelides: Audit Office of the Republic of Cyprus, Nicosia, Cyprus

Interfaces, 2024, vol. 54, issue 2, 103-126

Abstract: The Audit Office of the Republic of Cyprus conducted the first-ever audit of the country’s public debt, seeking answers to two key questions. Is government debt sustainable, and is debt financing efficient and effective in securing the lowest cost with acceptable risks? The audit’s findings were discussed by the parliament and can have significant ramifications for public finance. However, public debt management is quite complex, and the International Organization of Supreme Audit Institutions suggests that sufficient technical knowledge is essential in undertaking an audit, including an understanding of the uncertain macroeconomy, financing conditions, and government fiscal stance. We use a risk management model based on scenario trees in conducting the audit. The model determines optimal debt financing strategies to benchmark the performance of the country’s Public Debt Management Office and answer the audit questions. We also incorporate an integrated assessment model to examine the risks from climate change. The auditor general presented the findings to the Parliamentary Audit Committee in the presence of the Minister of Finance, and his recommendations are expected to have a significant impact on the debt operations of the country.

Keywords: debt sustainability analysis; performance audit; debt financing; climate risk (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orinte:v:54:y:2024:i:2:p:103-126

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