On behalf of the World Bank, it is my honor and privilege to welcome you to the 2nd Government Debt and Risk Management (GDRM) Roundtable. We are delighted to welcome debt managers from 17, mostly, middle-income countries. A special welcome also to Werner Gruber, Executive Director of Switzerland at the World Bank, and Meral Karasulu, Director of Fixed Income Research at Oppenheimer Funds. I hope that those of you who participated in the Annual Meetings found them productive.
Debt management in emerging market economies
Debt managers in emerging market economies are facing increasingly complex challenges and vulnerabilities, making effective and prudent debt management even more critical. Over the recent past, prolonged growth slowdown, increased fiscal deficits, geopolitical risks, negative terms of trade shocks, and a deliberate increase in debt issuances, has led to an increase in debt portfolio vulnerabilities. While 2017 has proven relatively benign so far, risks remain, in respect of monetary policy, growth prospects, and geopolitical risks. Meral Karasulu will present pertinent insights on the current global economic outlook in her keynote address.
Capacity building - GDRM Program and Roundtable
To increase the resilience of economies to these vulnerabilities, debt managers need to continuously upgrade their capacity and to employ an expanding array of innovative instruments and strategies. Middle-income countries, in particular, are engaging in ever more complex operations for funding and risk management. At the World Bank, we recognize our clients’ need for specialized and highly tailored support in building the required capacity.
We are grateful to the Swiss government, represented by Mr. Gruber today, and the Swiss State Secretariat of Economic Affairs (SECO) to have partnered with us since 2011 to deliver programmatic and tailored capacity building for middle-income countries through the GDRM program – the only program focused on middle-income countries. The promotional film we just watched highlights key aspects of this practitioner-to-practitioner program. The program has grown from 6 countries in 2011 to 12 countries today. When a country becomes a partner, World Bank Treasury experts not only make assessments and recommendations, but follow up with their counterparts in client countries for full implementation and sustainable outcomes.
To highlight just two examples:
In Serbia, the government requested our support in establishing a framework to manage currency risk through the use of derivatives. Under Cigdem’s leadership, we brought to bear the expertise of the World Bank Treasury as a significant participant in derivatives markets. This expertise has been built up over the years from our asset and liability management and risk management and from managing a derivatives portfolio of over 550 billion dollars. We also facilitated exchanges with country practitioners, based on our extensive relationships with many debt managers around the world. Branko Drcelic will elaborate on Serbia’s experience in the GDRM program tomorrow.
In Indonesia, we supported the government in the management of contingent liabilities from government guarantees. Employing the expertise of the World Bank’s credit risk management team, we supported our clients in developing an internal credit rating methodology to help assess and manage risk stemming from the government’s issuance of guarantees. Pak Heri Setiawan from the Indonesian Ministry of Finance will talk more about this tomorrow. He will also discuss Indonesia’s efforts to establish an asset and liability management (ALM) framework. Sovereign ALM is an area we see increasing interest from clients. Accordingly, as the World Bank Treasury we recently developed the B-RISK Program to support member countries with managing their own balance sheet risks to minimize vulnerabilities against external shocks. The B-RISK Program brochure in your Roundtable pack provides you more information on this program.
As you may know, the first phase of the program ends in 2017. Given your positive feedback, Switzerland’s readiness to continue to support the program, and our conviction that the program can continue to support you in building capacity to manage financial and fiscal risks, we are delighted to start a second phase in 2018. I am delighted to note that our President, Jim Kim and the Swiss Authorities signed the replenishment agreement in Berne in August.
This roundtable is an opportunity to share sound practices, country experiences, and to foster a network among debt managers from middle-income countries. The roundtable covers sessions
- on the choice of currency when issuing in international capital markets;
- the use of derivatives to manage market risk;
- the international settlement of local currency bonds;
- innovative financial instruments;
- how to manage non-resident investors; and more.
To conclude, while we continue to face many uncertainties and opportunities, we have clarity on some fundamental issues. One of them is the importance of your jobs, as debt managers. When external, or internal shocks shake the economy, it is your job to build a structure resilient enough to withstand these shocks. At the same time, you are grasping new opportunities to raise funds and manage risks.
We, at the World Bank, believe that implementing sound debt management policies are key to a country eliminating extreme poverty and boosting shared prosperity. This guides the work we do.
Let me thank our debt management advisory team, led by Coskun Cangoz, for organizing this important roundtable. I am delighted to welcome you and thank you for joining us. I wish you success in your discussions over the course of today and tomorrow, and most especially for your continued financial stewardship of your government debt.