WASHINGTON, August 3, 2010 — The World Bank is seeing a surge in demand from borrowers seeking the Bank’s expertise to mitigate currency and interest rate risk. In fiscal year 2010, the World Bank Treasury arranged US$11.8 billion in hedging transactions on behalf of clients, including interest rate and currency hedges. Governments entered these transactions to help implement their targeted debt management strategies.
A country’s debt portfolio is exposed to currency, interest rate, and rollover risks that can undermine its financial stability. The World Bank long has supported countries’ establishing sound risk management practices to better protect and manage government resources.
“Improved macroeconomic policy and public debt management helped most emerging market countries avoid sovereign debt distress during the global financial crisis of 2008-09,” said Phillip Anderson, Acting Director of Banking and Debt Management in the World Bank Treasury. “We have worked with many countries, such as Indonesia, Mexico, Morocco, and Tunisia, for a number of years, providing technical assistance and offering risk management products that have allowed them to move closer to achieving their long-term debt management objectives.”
On average, the World Bank Treasury carries out US$25-35 billion of hedging transactions per year to manage risks on the World Bank’s balance sheet and on behalf of clients. Last fiscal year saw a threefold increase in risk management transactions for clients compared to pre-crisis levels. The World Bank’s long-standing reputation in global capital markets allows it to intermediate these transactions at better terms than many countries could achieve on their own, particularly in the crisis environment.
As well as being a significant source of development financing, the World Bank makes available to all members a broad menu of financial services, grounded in its sixty years of experience as a leading participant in the international capital markets. For example, it offers products that allow clients to manage risks related to commodity prices and natural disasters, credit enhancement instruments, and innovative financial solutions to match sources of funds with development priorities.