Sovereign Asset and Liability Management Framework for DMOs: What Do Country Experiences Suggest?

This paper examines the benefits and challenges of adopting a Sovereign Asset and Liability Management (SALM) framework in debt management from selected country practices and draws lessons that are relevant for and transferrable to developing countries. The paper argues that a stepwise approach would be useful for adopting a SALM framework in developing countries, as there are plentiful practical obstacles in implementing a straight forward model-based, policy oriented balance sheet approach in those economies. Initially, priority balance sheet areas should be identified and assessed in a conceptual balance sheet framework, both from a vulnerability and management perspective. A good starting point in this regard would be considering financial assets such as cash reserves or wealth funds for which DMOs are responsible as well as future assets and liabilities. In a second stage, simplified risk analysis can be applied to elaborate mismatches and determine appropriate hedging options. Finally, in order to address communication and governance challenges among government institutions, establishing new structures, i.e. certain departments and coordinating committees, are recommended