UNCTAD Virtual Institute for Trade and Development
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Sovereign Asset and Liability Management: An E-Learning Training Course
I. The Accounting/Financial Balance Sheet
II. Sovereign Asset and Liability Management Framework: Approach I
III. Sovereign Asset and Liability Management Framework: Approach II
IV. Sovereign Asset and Liability Management Framework: Approach III
V. Contingent Liabilities
i. Explicit Liabilities: Guarantees
ii. Implicit Liabilities: Financial Sector Bailouts and Natural Disasters
iii. Managing and Mitigating Contingent Liabilities




“While closely linked, the objectives of managing assets and liabilities are seldom coordinated.  The main objective of debt managers is to ensure financing of the budget at the lowest possible cost subject to an acceptable level of risk. In contrast, the objectives of sovereign asset and liability management are to ensure that cash balances meet commitments and maximize net worth subject to moderate level of risk” (Das et al., 2012).  However, it is worth nothing that the Sovereign Asset and Liability Management (“SALM”) approach is more concerned with risk minimization compared to traditional Public Debt Management (“PDM”).  The Sovereign Asset Liability Management (“SALM”) framework is utilized and implemented in a variety of ways.  The appropriate level of complexity will be guided by the long-term economic and nation specific objectives of the sovereign, in addition to the resources available to the practitioners.  Effective SALM will only be as good as the reliability of data and information that guides policymakers.

In Module II, we will present three (3) different SALM frameworks:

  1. Approach I: Matching of primary assets and liabilities based on risk characteristics
  2. Approach II: Matching of primary assets, including foreign reserves, and liabilities based on risk characteristics
  3. Approach III: More complete matching of primary assets, including Central Bank (“CB”) Holdings and Sovereign Wealth Funds (“SWF”), and liabilities based on risk characteristics

SALM is not limited to any of these models as an appropriate framework should be developed according to the needs of the sovereign.  The three (3) models will serve as examples of the differences that can exist within the SALM framework while maintaining its core principles.

In addition to the three (3) different SALM frameworks that are presented, the accounting or financial balance sheet(1 )will be introduced in Module II.  This will illustrate the differences between the conceptual and accounting balance sheets and how each has different objectives.  Contingent liabilities (“CL”), a prominent component of the conceptual balance sheet but not included on the accounting balance sheet, will be specifically addressed.  Focus will be given to explicit CL in the form of guarantees and the examples of financial sector bailouts and natural disasters will be used to demonstrate the risks posed by implicit CL.  While the SALM frameworks shown in Module II will examine basic risk hedging techniques, interest rate, currency, and maturity matching are discussed in greater detail in Module IV.

(1) In the Module, accounting and financial balance sheet are used interchangeably.





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