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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

instruments and policy commitments. This approach entails monitoring and quantifying the impact of movements in economic and financial variables, including exchange rates, interest rates, inflation, and commodity prices, on sovereign assets and liabilities, and containing other asset- and debt-related vulnerabilities in an integrated way. A comprehensive SALM framework can have significant advantages over separate management of assets and liabilities (see Lu et al., 2007; Das et al., 2012 ; Koc, 2014 ). It allows analysis of the financial characteristics of the balance

International Monetary Fund. Fiscal Affairs Dept.
The Ministry of Finance and Public Credit (SHCP) of Mexico intends to strengthen public asset and liability management (ALM) practices. The 2018 Fiscal Transparency Evaluation (FTE) identified several gaps in reporting public sector assets and liabilities and analysis of the associated risks. The authorities have identified the need for further reforms in three interrelated areas: (i) adopt the public sector balance sheet (PSBS) analytical framework to inform policy making; (ii) move toward more active cash management; and (iii) strengthen the management of financial assets and introduce a sovereign assets and liabilities management (SALM) framework in a phased manner. This report provides recommendations for reforms in these three areas.
International Monetary Fund. Fiscal Affairs Dept.

) strengthen the management of financial assets and introduce a sovereign assets and liabilities management (SALM) framework in a phased manner. This report provides recommendations for reforms in these three areas. Adopting the Public Sector Balance Sheet Analytical Framework to Inform Policy Making The SHCP has been making consistent efforts over the last two decades to compile the PSBS and expand its coverage of institutions, flows, and stocks . The 2006 Fiscal Responsibility Law and subsequent regulations introduced the Public Sector Borrowing Requirements (PSBR

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

firms, and or potentially weak financial sectors and/or subnational entities. These risks, if realized, could cause a significant fiscal and financial drain and a consequent fall in the country’s domestic absorption and potential output. 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. This framework can also be used to inform the macroeconomic and financial stability policy design. SALM focuses on managing and containing 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.
International Monetary Fund

different types of asset pools; Sections 4 briefly presents the main elements of sovereign liability management, before turning to the heart of the paper in Section 5 to analysis the linkages and interactions between the different elements on the balance sheet and discuss risk management considerations in an integrated framework. Section 6 is dedicated to governance and risk management issues of SWFs, and Section 7 concludes with the main policy recommendations. Sovereign Assets, Liabilities, and Salm Framework 6. Sovereign assets and liabilities can be narrowly

André Amante, Phillip Anderson, Thordur Jonasson, Herman Kamil, and Mr. Michael G. Papaioannou

Front Matter Page Monetary and Capital Markets Department Contents I. Introduction II. SALM Framework and the Stylized Sovereign Balance Sheet A. SALM and Economic Policy B. Practical Challenges of Applying an SALM Framework C. Country Experiences in Applying SALM III. The Case of Uruguay A. Policy Objectives B. Identifying Exposures in the Consolidated Public Sector Balance Sheet C. Role of Institutional Entities’ Arrangements in Supporting SALM IV. Transactions Designed to Address Risk Exposure Across the Sovereign

International Monetary Fund

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. Although separate asset and liability management strategies may be optimal for individual institutions