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Sovereign Asset and Liability Management


Washington, DC


How does an institution join B-RISK Program?

Any official institution of the World Bank member countries may request to join the B-RISK Program. An engagement starts with the needs assessment offered on a no-cost basis.

Needs assessment

(i) Review: (a) the governance structure, (b) management of the main components of the sovereign balance sheet (i.e. government’s cash balance, central bank reserve, state owned enterprises, government debt, contingent liabilities etc.), (c) technical and policy level coordination among the institutions

(ii) Determine: the major balance sheet risks.


World Bank recommends a project plan including the timeline and a set of modules which could be the most appropriate solution for the institution. However, it is the institution’s decision to request to join the B-RISK Program.


In almost every country, the institutions that manage the assets of a sovereign are different than the bodies that oversee the liabilities, often with mandates to optimize their specific deliverables. But the sound macroeconomic management requires many entities with different mandates to coordinate seamlessly, to deliver economic growth and to provide resiliency against economic shocks. Having a holistic view of the sovereign balance sheet paints a complete picture for analyzing and managing the potential risks and opportunities for the government.

What is sovereign asset and liability management approach?

Sovereign asset and liability management is the process of managing the use of assets and cash flows to meet the government’s financial obligations at the lowest possible cost with a prudent level of risk. This approach requires analyzing the mismatches in currency and interest rate composition, for natural hedges and duration of the cash flows, and over time, choosing the assets and liabilities with matching characteristics and/or employing financial derivatives to enable sovereigns to more effectively manage their risk to achieve identified, desired risk levels.

What should be in a sovereign's balance sheet?

Assets and liabilities in a sovereign’s balance sheet, very much depend on the country context. Among the assets, governments may account for stocks such as cash reserves (domestic and international), sovereign wealth funds, equity in state-owned enterprises and subnational entities as well as other fixed financial assets. They may account for inflows such as tax revenues and non-tax revenues, onlending flows, receivables, even the present value of future income. Among the liabilities, they may include sovereign debt, government expenditures, pensions, government guarantees, legal claims, deposits in commercial banks, currency in circulation and other commitments. There is no cookie cutter approach to look at a sovereign's balance sheet and managing the associated risks.

What are sovereign balance sheet risks?

Balance sheet vulnerabilities stem from mismatches between the financial characteristics of assets and liabilities. The most often experienced mismatches are currency composition, interest rate basis and duration between assets held by the government and its liabilities. Mismatches in the inflows and outflows are particularly significant and can lead to a higher probability of financial crisis.
Foreign currency mismatches have resulted in financial crises in numerous countries, including Mexico in 1994, Brazil in 1999, Russia in 1998, and Argentina in 1998-2002. Following the global financial crisis, sovereign balance sheets became more complicated; constraints in external markets, issuance of short-term debt and increase of foreign reserves have all contributed to sovereigns carrying higher risks.

How to manage sovereign balance sheet risks?

After analyzing the mismatches between assets and liabilities, the financial characteristics of the current and future cash flows can be hedged, using financial derivatives to help smooth the budgetary impact of shocks on debt servicing costs, while ensuring return optimization.

Balance Sheet Risk Management Program

The B-RISK Program offers a holistic approach to manage sovereign balance sheet risks and opportunities to minimize vulnerabilities to external economic shocks.

The World Bank Treasury, which manages IBRD’s approximately US$200 billion debt portfolio1 and issues bonds and notes in more than 21 currencies2, has substantial experience and knowledge in asset and liability management. This expertise includes practitioner advice; management of $150 billion in assets of the World Bank Group, central banks, pension funds, sovereign wealth funds and other multilateral organizations; innovative financial solutions (i.e. derivatives, catastrophe bonds); and outstanding execution services backed by market insight and global coverage.

Leveraging Treasuries’ asset and liability management know-how, the Program helps sovereigns develop as well as implement, an overarching strategy for managing the potential risks from outflows and opportunities from inflows.

B-RISK Program is modular and operates on a fee-for-service basis.

Our Services:

Module I – Expert Advice:

Unlike many other programs, B-RISK Program offers asset and liability management solutions drawing on the collective know-how of expert practitioners in the World Bank Treasury.

An advisory engagement usually begins with an assessment, which includes an evaluation of capacity and institutional issues, and reform recommendations. Focus areas of expert advice include:

  • Legal and organizational framework
  • Strategy design
  • Operational framework
  • Coordination with monetary and fiscal policies
  • Integration of cash and debt management

Module II - The B-RISK Learning:
  The B-RISK Learning module provides training on different areas of sovereign asset and liability management. The module offers hands-on training and workshops, discussion meetings with senior and executive staff, South-South experience sharing, and internships at the World Bank Treasury.

Module III - Liability management operations:
  1. Assessment: diagnostic assessment of the exposures of debt portfolio to changes in market risk variables.
  2. Design: design, selection and execution of transactions such as buy-backs, debt-swaps and derivatives.
  3. Liability management: managing the market risk of the debt portfolio, within a given mandate, to attain government’s debt management objectives.

Module IV - Asset management operations:
  1. Assessment: diagnostic assessment of the impact of different spending rules and asset allocations.
  2. Design: design, selection and execution of transactions.
  3. Asset management: overall asset management support and the management of foreign currency cash balance in coordination with the World Bank’s Reserves Advisory and Management Program (RAMP).

Module V – Just-in-time Support (JITS):
  We provide assistance to the clients that have specific requests on technical issues or are in the initial stages of assessing their short-term needs.
Our approach:
  • Modular: B-RISK is a fee-for-service based program and each participating country can customize the engagement by choosing the type and number of modules according to their needs.
  • Coaching: B-RISK provides long-term programmatic support “from assessment to implementation” on all topics related to sovereign asset and liability management. Establishing long-term relationships allows Treasury experts to know their counterparts and ensures continuity.
  • One Stop Shop: For those who choose all of the modules, B-RISK not only provides expert advice but also offers workshops and seminars on effective management of assets and liabilities under the given mandate.
  • Expert practitioner driven: B-RISK experts are seasoned practitioners with hands-on experience and expertise drawn from working in public debt management offices, central banks and the World Bank Treasury’s operational departments.

1 As of end Fiscal Year 2016.
2 In FY16, IBRD raised $63 billion of debt in 21 different currencies.

Case Studies

There is no standard asset and liability management (ALM) framework for sovereigns which can be adopted by all countries. Therefore, based on the objectives of the sovereign and the country specific conditions, ALM framework may differ depending on the country context.

Starting from 1990s, some of the developed countries adapted the ALM approach, widely used by financial intermediaries, to the sovereign balance sheet management. New Zealand has become one of the pioneers to introduce a comprehensive ALM approach, while countries like Denmark adopted ALM in a narrow scope. A decade later, some of the emerging countries such as Turkey initiated ALM framework with a sub-portfolios approach.

New Zealand, Parliament Building, Photo Credit Thinkstock

New Zealand: The New Zealand Treasury (“Treasury”) conducts sovereign balance sheet risk analyses to support its fiscal, balance sheet and debt management strategies. The New Zealand Debt Management Office (NZDMO) is an operating unit of the Treasury that aims to ensure “the composition of the core Crown debt portfolio and funding programmes are structured to optimize Crown balance sheet risk and return outcomes over the long term”. The NZDMO has adopted a broader sovereign asset-liability management (SALM) approach to public debt management that accounts for total Crown risk and return outcomes when determining debt and portfolio management strategies. These strategies are informed by analyses of the government’s entire balance sheet, which is constructed from a variety of documents, including the government’s monthly Financial Statements and publicly available semi-annual fiscal forecasts. More...

Turkey, Parliament Building, Source: WWW.tbmm.gov.tr

Turkey:After Turkey experienced a financial crisis in 2000-2001, the country started working with the IMF on a financial reform program that strengthened the country's fiscal fundamentals. As a part of the reforms the government enacted Law No. 4749 on Regulating Public Finance and Debt Management, created a Risk Management Unit in the Treasury and a high level Debt and Risk Management Committee, and integrated cash and debt management which allowed for a more holistic practice of asset and liability management. More...

Denmark, Parliament Building, Photo Credit Thinkstock

Denmark: Before 1991, Denmark’s debt management office was part of the Ministry of Finance (MoF). In 1991, it was moved to the central bank – Danmarks Nationalbank (DNB) – partly in response to a report prepared by the Government’s public auditors. The report found that the DNB already carried out most of the assignments related to Government debt and, as a result, duplication occurred between the bank and the MoF. The report suggested that stronger coordination between the DNB’s foreign exchange reserves management and the Government’s foreign debt would be beneficial. It also suggested, that attracting and maintaining staff with the relevant skills would be easier if the DNB houses the debt office. The move to the central bank has helped to centralize knowledge of most aspects of financial markets within a single authority. Since 1991, the DNB has undertaken all administrative functions related to government debt management. The division of responsibility is set forth in an agreement between the Ministry of Finance and the DNB. More...





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