Description of Topic
Public debt managers are exposed to a wide range of potential risks that could be categorized in two main areas: financial risks and operational risks. Financial risks, such as interest rate risk and currency risk, are central to developing and maintaining a debt management strategy grounded in cost-risk analysis. As such, public debt managers spend a considerable amount of effort identifying, evaluating and mitigating those risks.
Awareness of operational risks is often less developed. Operational risks are typically broader in scope and are not only concerned with government debt offices. However, their impact can be significant for public debt managers given the volume of financial transactions and payments performed on a daily basis.
Basel II defines operational risk as "the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events" and this can be directly applied to public debt management. This definition encompasses a wide range of risks, which include:
- technology failure (computer, power, debt database, etc.);
- human error (due to lack of procedures, resources or training);
- failure to meet legal or contractual obligations;
- dependency on third party service providers; and
- natural disasters and other external events disrupting business continuity.
To address these risks, public debt managers should set up and maintain a robust Operational Risk Management (ORM) framework and develop appropriate policies, processes and procedures to monitor incidents, measure and report on their impact, and mitigate their effects. As indicated in the 2014 IMF WB Guidelines for Public Debt Management, "operational risks should be managed according to sound business practices, including well-articulated responsibilities for staff, and clear monitoring and control policies and reporting arrangements."
The webinar on ORM aims to initiate a broad discussion among government debt practitioners and facilitate a sharing of experience and key lessons. Given the wide scope of operational risks, speakers will either present their ORM framework in general or focus on one particular area of risks (such as disaster risk management/business continuity). They are expected to highlight challenges faced in developing and applying their ORM framework, results to date and next steps, as well as the various costs incurred in terms of human resources, training, external consultancy, systems, etc. Participants will have the opportunity to pose specific questions and share their own experiences.