Australian Office of Financial Management
Section 1: Agency overview and resources
1.1 Strategic direction
The Australian Office of Financial Management (AOFM) was established in 1999 to enhance the management of Australian Government debt and financial assets, to reduce debt servicing costs and to improve net worth. This role has expanded over time as the AOFM has taken on new responsibilities for maintaining and monitoring the efficiency of the Treasury Bond market, managing a wider range of financial assets and providing support for other sovereign debt managers in the region.
In recent years debt issuance by the AOFM has been undertaken solely with the objective of maintaining the Treasury Bond and Treasury Bond Futures markets. This has been because successive budget surpluses have removed the need to borrow to fund the budget. Since 2003, issuance has been maintained to support the continued operation of these markets as they allow market participants to better manage their interest rate risk and thereby contribute to a lower cost of capital in Australia. They also help strengthen the financial system against the potential impacts of financial shocks.
The AOFM has managed the cost and risk inherent in the debt on issue by executing domestic interest rate swaps to achieve lower debt servicing costs, while at the same time keeping the variability of debt servicing costs at an acceptable level. For several years now structural and cyclical factors have contributed to a flattening of the yield curve and reduced the potential to make savings in debt servicing costs. Global credit tightening in financial markets since August 2007 has further reduced the opportunities to make savings through interest rate swaps. In response to these developments over recent years, the AOFM has reduced the volume of swaps undertaken and changed its benchmark closer to a portfolio structure that would result from debt issuance without swaps. The portfolio management benchmark and strategy, including the interest rate swap program, is reviewed annually. Following its latest review, in April 2008, the AOFM has no plans to execute interest rate swaps in 2008‑09.
The AOFM also manages the overall level of cash in the Official Public Account with the Reserve Bank of Australia (RBA) to ensure that the government is able to meet its financial obligations as and when they fall due. Other objectives are to minimise the cost of funding the balances and to invest excess balances efficiently. It does this through making short‑term deposits with the RBA to offset fluctuations in the daily flows in and out of the government's accounts with minimum use of the government's overdraft facility with the RBA.
The AOFM currently acts as an agent for the Department of Broadband, Communications and the Digital Economy (DBCDE) in making investments for the Communications Fund. These investments and their earnings are reported by DBCDE and not the AOFM.
1.2 Agency resource statement
Table 1.1 shows the total agency resources from all sources. The table summarises how resources will be applied to the AOFM.
Table 1.1: Australian Office of Financial Management resource
statement — Budget estimates for 2008‑09 as at Budget May 2008
Table 1.1: Australian Office of Financial Management resource
statement — Budget estimates for 2008‑09 as at Budget May 2008
(continued)
1. Appropriation Bill (No.1) 2008‑09.
2. Receipts received under s31 of the Financial Management and Accountability Act 1997.
3. Estimated adjusted balance carried forward from previous year for annual appropriations.
4. Estimated opening balance for special accounts. For further detail on special accounts see Table 3.1.3.
1.3 Budget measures
Table 1.2: Australian Office of Financial Management 2008‑09 Budget measures
The AOFM does not have any Budget measures for 2008‑09.
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