Search Results

You are looking at 1 - 10 of 23 items for :

  • "SALM approach" x
Clear All
André Amante, Phillip Anderson, Thordur Jonasson, Herman Kamil, and Mr. Michael G. Papaioannou
This paper provides an overview of the strategic and operational issues as well as institutional challenges, related to the implementation of the Sovereign Asset and Liability Management (SALM) approach. Application of an SALM framework allows the authorities to identify and monitor sovereign exposure mismatches; increase resilience to foreign currency and interest rate risks; and thus, strengthen financial stability; and implement more cost-effective management of the public-sector debt. The analysis is based on emerging market (EM) countries and illustrated by the experience of Uruguay, using data as of end-2017.
Mr. Udaibir S Das, Miss Yinqiu Lu, Mr. Michael G. Papaioannou, and Iva Petrova
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.
André Amante, Phillip Anderson, Thordur Jonasson, Herman Kamil, and Mr. Michael G. Papaioannou

I. Introduction The SALM approach focuses on the identification 2 and management of the financial risk exposures of the public sector as a whole, so that a sound balance sheet is preserved in support of a sustainable policy path and economic growth. In general, the sovereign balance sheet includes the assets and liabilities of the general government (central government, municipalities, and public pension entities) or the public sector (general government, state owned enterprises, and the central bank). The SALM approach can encompass also off-balance sheet

Mr. Udaibir S Das, Miss Yinqiu Lu, Mr. Michael G. Papaioannou, and Iva Petrova

financial risk exposure of the public sector as a whole, so as to preserve a sound balance sheet needed to support a sustainable policy path and economic growth. The SALM approach entails monitoring and quantifying the impact of movements in exchange rates, interest rates, inflation, and commodity prices on sovereign assets and liabilities and identifying other debt-related vulnerabilities ( Rosenberg et al., 2005 ) in a coordinated if not an integrated way ( Figure 1 ). 2 Figure 1. SALM Components The SALM approach can also be utilized to facilitate a country

Abdullah Al-Hassan, Sue Brake, Mr. Michael G. Papaioannou, and Martin Skancke
Commodity-based sovereign wealth funds (SWFs) have been at a crossroads following the recent fall in commodity prices. This paper provides a framework for commodity-based SWF management, focusing on stabilization and savings funds, by (i) examining macrofiscal linkages for SWFs; (ii) presenting an integrated sovereign asset and liability management (SALM) approach to SWF management; and (iii) applying this framework to a scenario where assets are being accumulated and to a scenario where the SWF is drawn on to cover a financing gap due to lower commodity prices.
Abdullah Al-Hassan, Sue Brake, Mr. Michael G. Papaioannou, and Martin Skancke

accumulation and liquidation decisions in the broader context of the owner’s sovereign balance sheet. In particular, it (i) examines some relevant macro-fiscal linkages for SWFs, (ii) presents an integrated SALM approach to SWF management, and (iii) applies this framework to scenarios where assets are accumulated in an SWF and where the SWF is drawn on to cover a financing gap due to lower commodity prices. At times of persistent movements in commodity prices, there may be a need to align the management of the SWF to the fiscal framework through inflow and outflow rules for

International Monetary Fund

sheet. Sovereign wealth management in this context requires reconciling various objectives under a comprehensive framework that takes account of various options to manage risk and return. The value-added of the paper is to operationalize some of the key principals of an intergraded SALM approach and showcase country experience in implementing these principals. The paper provides policymakers with a practical framework to consider the various opportunities and challenges that arise in the context of managing natural resource wealth, and provides practical advice for

International Monetary Fund

and interactions across assets and liabilities in the context of a partial SALM approach. A. Sovereign Asset-Liability Management Framework 51. An integrated SALM framework is a holistic approach that aims to minimize vulnerability of government finances in the face of potential shocks . 6 The main objective of sovereign liability management is to ensure financing of the budget at the lowest possible cost subject to an acceptable level of risk. In contrast, sovereign asset management aims to ensure that cash balances meet commitments and maximize the

International Monetary Fund
Ample natural resource revenues create both opportunities and challenges for a sovereign to transform its natural resources into well-managed financial assets. Hence, inter-temporal smoothing of revenue and consumption/investment moves to the center stage of macroeconomic policies. The questions arising from natural resource wealth accumulation are becoming more pressing for many countries, given the need to achieve intergenerational equity in a context where commodity prices may not continue their upward trajectory of the past decade. Addressing these questions requires a flexible sovereign asset-liability management (SALM) framework that integrates various macroeconomic and financial trade-offs with the aim of containing financial risk to the sovereign balance sheet. The framework and policy advice aims to guide policymakers across different institutions in weighing those trade-offs.
Thordur Jonasson and Mr. Michael G. Papaioannou

realized, could cause a significant fiscal and financial drain and a consequent fall in the country’s domestic absorption and potential output, besides affecting the balance of payments. To help identify and manage effectively the key financial exposures, a sovereign asset and liability management (SALM) framework, based on the balance-sheet approach, can be employed. The SALM approach aims to help detect sovereign risk exposures from a consolidated public-sector portfolio perspective. It allows one to analyze the financial characteristics of the balance sheet