Guidance for Operational Risk Management in Government Debt Management

In government debt management (DeM), the categories of risk such as market risk (exchange rate and interest rate risk), credit risk, refinancing risk and liquidity risk are relatively well known; operational risk is however, less well known and an area that has not been given much attention to by government debt managers in developing a risk management framework. This paper introduces the concepts of operational risk as applied to government DeM and attempts to present a framework for debt managers to manage operational risks while undertaking public debt management operations. It draws on existing literature for operational risk management principles and practices that have been formulated by the Bank for International Settlements (BIS) Basel Committee on Banking Supervision and the Committee of Sponsoring Organizations (COSO). It provides guidance on developing a framework for assessing risk exposures from incidents or events that can adversely impact on reputation, financial cost, outputs and/or budget variance. 1