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Sovereign Asset and Liability Management: An E-Learning Training Course
I.Definitions
II. Rationale
III. The Conceptual Balance Sheet
IV. Contingent Liabilities
V.Conclusion
Bibliography
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Conclusion

The foundational information in Module I provides a starting point for developing a SALM framework.  Practitioners will determine the appropriate level of complexity of SALM to be implemented based on the availability of resources and institutional attributes.  The principles that guide SALM are merely an extension of many current practices in risk management being undertaken by sovereign debt offices.  SALM should be viewed as another step toward a more comprehensive risk management approach.    For example, simply matching the currency in which assets and liabilities are held reduces the possibility that assets will decrease and liabilities will increase simultaneously due to currency devaluation.  The conceptual balance sheet should serve as the starting point for SALM.  By extending the balance sheet beyond the accounting domain allows for a more comprehensive risk assessment as contingent liabilities are quantified and included in the analysis.  Estimating the value of contingent liabilities and the probability they will occur is challenging but necessary.  By quantifying these real threats to long-term stability and development, a sovereign can pursue policies according to its actual risk exposure and allocate resources more efficiently.  While the SALM conceptual framework incorporates many ideas and practices already being utilized, advancing from a theoretical SALM framework to actual implementation can be difficult.  The tension between the theoretical model and a pragmatic one is due to the lack of one “best practice” to follow.  A country specific SALM framework must be developed according to the sovereign’s specific asset and liability profile, structure of its economy, risk tolerance, and long-term economic objectives.  

 

 

 

 

 

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