Treasury responds to Debelle's review into the AOFM

Treasury has responded to the Guy Debelle-led review into the Australian Office of Financial Management (AOFM), agreeing to all six recommendations.

Some of the recommendations included the AOFM implementing a lower liquidity buffer and continuing its indexed bond program.

Debelle also recommended expanding the advisory board's remit to advise on all aspects of the AOFM's operations that bear on the debt program, including the Financial Risk Management Policy. The advisory board should also participate in the formulation of the debt management strategy much earlier in the process to help shape it and the Treasury Secretary should continue to provide final approval of the Strategy.

The independent review, which concluded in April, found the AOFM overall is performing its core functions effectively, and Australia's sovereign debt management program is highly regarded by market participants, meets the Commonwealth's financing needs, and is administered in a cost-effective way.

The AOFM's workplace culture and high turnover came under public scrutiny in an AFR article that detailed staff dissatisfaction with the organisation and senior leadership.

Debelle's review did not specifically make recommendations on how to improve workplace culture but mentioned "key person risk has been amplified by recent departures of experienced officials."

"This turnover has been concentrated at senior levels and has led to the agency losing significant tenured experience in the administration of sovereign debt programs. In addition, some of those who left were involved first-hand in the AOFM's crisis responses during the Global Financial Crisis and the COVID-19 pandemic," he wrote in his findings.

"The review's opinion is that the concentration of departures in a short period of time has left the AOFM with a deficit of appropriate experience, which will take time to rebuild organically. The review recognises these efforts currently underway but does not believe that the cross-skilling is sufficient to mitigate the AOFM's key person risk."

The sovereign debt manager has about $975 billion of securities on issue, the lion's share of which are treasury bonds.

While Debelle said he has confidence in the AOFM's ability to meet its mandate, it needs to undertake "a range of worthwhile improvements to its internal operations."

"However, the risks to its ability to continue delivering key elements of its core mandate of debt issuance into the future are heightened, due to a concentration of expertise in a small number of key people," he said.