Sovereign Risk and Asset and Liability Management-Conceptual Issues

45 Pages Posted: 1 Nov 2012

See all articles by Udaibir Das

Udaibir Das

International Monetary Fund (IMF)

Yinqiu Lu

International Monetary Fund

Michael G. Papaioannou

International Monetary Fund (IMF)

Iva K. Petrova

International Monetary Fund (IMF)

Date Written: October 2012

Abstract

Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in in the current generation of sovereign asset and liability management (SALM) approaches, including objectives, definitions of relevant assets and liabilities, and methodologies used in obtaining optimal SALM outcomes. These elements are used in developing an analytical SALM framework which could become an operational instrument in formulating asset management and debtor liability management strategies at the sovereign level. From a portfolio perspective, the SALM approach could help detect direct and derived sovereign risk exposures. It allows analyzing the financial characteristics of the balance sheet, identifying sources of costs and risks, and quantifying the correlations among these sources of risk. The paper also outlines institutional requirements in implementing an SALM framework and seeks to lay the ground for further policy and analytical work on this topic.

Keywords: Accounting, Asset management, Debt strategy, Financial risk, Risk management, Sovereign debt, Sovereign asset and liability management, sovereign balance sheet, reserve management, debt management

JEL Classification: F34, F37, G11, G12, G13, G15, G18

Suggested Citation

Das, Udaibir and Lu, Yinqiu and Papaioannou, Michael G. and Petrova, Iva K., Sovereign Risk and Asset and Liability Management-Conceptual Issues (October 2012). IMF Working Paper No. 12/241, Available at SSRN: https://ssrn.com/abstract=2169782

Udaibir Das (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Yinqiu Lu

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Michael G. Papaioannou

International Monetary Fund (IMF) ( email )

700 19th Street NW
10-115
Washington, DC 20431
United States
001-202-623-7799 (Phone)
001-202-623-7018 (Fax)

Iva K. Petrova

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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