Corporate Plan 2022-23

CHIEF EXECUTIVE OFFICER'S INTRODUCTION

The 2022-23 Australian Office of Financial Management's (AOFM) Corporate Plan has been prepared in accordance with paragraph 35(1)(b) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). This plan focuses on current and emerging issues over the 2022-2026 reporting periods.

The AOFM Corporate Plan guides the development of corporate projects and annual Business Group plans and helps to set the context for individual performance expectations.

The corporate planning process is based on identifying and assessing current and emerging risks and opportunities for the AOFM. Given its operations are in large part influenced by changes to global financial market conditions, risks and opportunities will continue to be influenced by a range of factors from beyond Australian shores.

Throughout most of 2021-22, bond markets sold-off (yields rose as prices fell). This move was driven by accelerating market expectations for inflationary pressures to become established and that central bank monetary policy responses would swiftly follow. The United States of America and Europe have each attracted particularly strong focus given the size and influence of their financial markets.

The bond market sell-off accelerated dramatically in early calendar 2022. Should central banks be forced over the coming year to respond to sustained inflation with a strong succession of cash rate rises and active balance sheet reductions (a reversal of Quantitative Easing (QE) programs), this could create unprecedented circumstances. In this regard the potential for financial markets to remain volatile is heightened.

While at times market issuance opportunities may be tightened, this should not impede the overall borrowing program for sovereign debt issuers (like the AOFM). With forecast continued strengthening of the Australian Government Budget position, the AOFM's call on funding markets will be relatively lower, reducing risks that would otherwise be faced in volatile market circumstances at times when the borrowing program is extremely high (as it was in 2020-21). Australia retains ready access to funding markets, but the dynamics of these markets are driven by global forces. Therefore, at times these dynamics have the potential to dictate the AOFM's choices of how to execute the borrowing program. That said, the AOFM maintains operational flexibility to deal with periods of market stress.

Domestic funding market conditions have recovered significantly since the onset of the COVID-19 pandemic. As a result, calls on the Structured Finance Support Fund (SFSF) to maintain capital flow to the small and medium enterprise (SME) lending sector have fully abated.

The AOFM has substantially achieved a winding down of this program and focus has returned to furthering market development objectives through the longer-term Australian Business Securitisation Fund (ABSF) program.

Organisational performance against the Corporate Plan will be monitored using key performance indicators as per past practice.

Rob Nicholl

Chief Executive Officer

Australian Office of Financial Management

A PDF version of AOFM's Corporate Plan 2022-23, and previous years, are available on the whole-of-government Transparency Portal.

CORPORATE PLAN 2022-23

Empowering people through opportunity, collaboration and support to achieve outstanding results.

KEY ACTIVITIES

The AOFM will achieve its purposes by delivering 11 key activities over the four-year period.

Table 1: Key AOFM activities and strategies

OUR OPERATING CONTEXT

External environment

The AOFM considers fiscal forecasts, global economic performance and funding market activities when developing its annual debt management strategy.

Impact of inflation on global economy

Global economic conditions have evolved rapidly in the past year. For the past decade or so, most developed market economies have operated in a low and stable inflation environment. More recently, inflation outcomes have been well above most central banks’ target ranges and in response, they have begun to tighten monetary policy and have strongly signalled that more tightening could follow.

Despite robust growth and employment outcomes, the outlook for inflation and interest rates remains uncertain. Inflation may persist at an elevated level, eliciting a stronger response from policy makers. Alternatively, risks to the growth outlook may prompt a need for easier monetary conditions than are currently priced into the market.

Outlook for risks

Although near-term outcomes for global economic growth have been robust, the Reserve Bank of Australia (RBA) characterises the balance of risks to the economic outlook as 'skewed to the downside'.

These risks include:

• financial conditions tightening more quickly than implied by market pricing
• the global economy possibly being more sensitive to falling real incomes (and consumption) than envisaged
• the Chinese economy slowing more sharply than forecast if outbreaks in COVID-19 are not contained quickly
• long-running macrofinancial vulnerabilities worsening.

Outlook for bond markets

Conditions in bond markets have been volatile, including many days of extreme moves in bond yields. With monetary policy settings anticipated to become more restrictive, markets are expected to remain volatile.

1 ‘Statement on Monetary Policy’, Reserve Bank of Australia, May 2022, https://www.rba.gov.au/publications/ smp/2022/may/>

Our capability

People

The work of the AOFM requires people with technical skills and experience in both financial markets and public administration. AOFM officials maintain broad market and economic knowledge and tap information networks relevant to global financial markets.

Workforce capabilities are enhanced through on-the-job training, professional development, access to a wide range of learning resources and regular exposure to important workplace experience.

By investing in its people and promoting a culture of professionalism and high standards, the AOFM aims to be the destination of choice for high quality recruits (especially at the graduate level).

The AOFM has a strong risk aware culture and staff are well-versed in risk identification and management. Other agencies tap our expert market advice from time to time.

Our recruitment efforts have yielded strong results with successful candidates being highly qualified and very capable. Recruitment is targeting the right skill and experience match for AOFM roles and supports a high performing workplace that can meet current and emerging challenges. We maintain a clear understanding of the AOFM’s workforce needs and understand the need for professional development planning.

In 2022-23, the AOFM will develop a medium-term workforce plan to ensure it is maintaining an appropriate focus on recruitment, training, and development.

Information technology

The AOFM’s Information technology (IT) requirements are delivered by Treasury under a memorandum of understanding; this provides access to Treasury’s IT platform and technical support.

Receiving IT services from Treasury gives the AOFM economies of scale that cannot be replicated in-house, particularly given the increasing challenges of maintaining suitably qualified and experienced technical staff. However, some of the AOFM’s IT needs differ from Treasury’s to the extent that the AOFM undertakes time critical market transactions and at times would benefit from greater access to the flexibility offered by some business systems.

As cloud-based platforms have been found to meet the needs of other smaller agencies, the AOFM has been undertaking detailed technical and business availability analysis to better understand these options. To that end, the agency’s IT Steering Committee (ITSC) is developing a business case to determine whether a cloud-based platform could provide appropriately flexible, fit for purpose IT solutions for the AOFM.

Risk oversight and management

The AOFM understands the importance of a risk-aware culture to promote proactive risk management through appropriate risk engagement and mitigation and informed decision making. The AOFM maintains an enterprise risk management (ERM) framework, financial risk management policies and an independently chaired Audit and Risk Committee. These governance arrangements provide clear and targeted oversight of risk management and internal controls.

The ERM framework builds on staff expertise in asset and debt portfolio management. The framework is aligned with the Commonwealth Risk Management Policy and industry best practice. It encourages staff to actively identify, evaluate, and engage with risk in an informed way. This occurs across strategic, portfolio, and operational levels. It also allows the AOFM to plan its pursuit of new opportunities.

The ERM framework is integrated into business planning, which is influenced by a risk appetite determined by the Executive Group. The Executive Group monitors the organisational risk profile and manages strategic risks. Business units undertake regular scans to identify emerging risks and new opportunities to improve operational efficiency and effectiveness.

As part of the 2022-23 corporate planning process, specific emerging risks and opportunities have been identified in addition to the more general risks highlighted in the external environment section (above). Emerging risks include: a tight labour market with the potential to impact recruitment and retention of staff; and the threat of cyber-attack(s) disrupting core operational delivery. Opportunities include: improving our data information management; actively promoting environmental, social and governance (ESG) financial market considerations within government in so far as they relate to the AOFM’s core financing responsibilities; and further enhancing human capital through broader development opportunities.

The AOFM has specific risk management policies tailored to its debt and asset portfolio responsibilities. The Financial Risk Management Policy focuses on debt portfolio and liquidity management risks. It includes related strategies and relevant limits. The AOFM has in place investment policies for its securitisation funds, which are aligned with overarching legislation and directions.

The AOFM’s risk culture remains consistently positive, exceeding comparable public and private sector benchmarks. Risk culture is monitored regularly through periodic internal audit reviews and whole-of-government surveys (such as Comcover Benchmarking).

Key risk profile

There are several key areas of risk facing the AOFM in undertaking its role, which arise from uncertainty of external factors or the implementation of major business initiatives. Table 2 outlines these risks and planned management actions.

Table 2: our key risk profile

Cooperation

The AOFM has strong financial market and inter-agency networks that support its forward planning and assessments of debt management and securitisation market needs.

To effectively manage the cash portfolio, the AOFM needs to work closely with Treasury, the Department of Finance, the Reserve Bank of Australia (RBA) and the Australian Taxation Office (ATO). Remaining up-to-date with changes to government outlay and tax receipt forecasts is an essential part of the role and is the basis for planning effective and efficient issuance programs.

To better understand changes within the global financial market environment, the AOFM actively engages with market participants including financial market intermediaries, investors, the RBA and other sovereign debt issuers. The AOFM has close ties to Treasury to prepare for and respond to material changes in government financing requirements.

The AOFM’s strong, productive relationships with financial market intermediaries, investors, and the Australian Securitisation Forum supports decisions in response to applications under the Australian Business Securitisation Fund (ABSF) and the Structured Finance Support Fund (SFSF) investment programs.

PERFORMANCE

The AOFM will achieve its purposes by delivering 11 key activities. Performance measures have been structured to align with the AOFM’s purposes and key activities. The following table sets out the performance measures we will report against in the 2022-23 Annual Performance Statement.

Purpose 1: Meet the government’s annual financing task while managing the trade-offs between costs and risks

Purpose 2: Ensure the government can always meet its cash outlay requirements

Purpose 3: Conduct market facing activities in a manner that supports a well functioning AGS market