Risk Management of Contingent Liabilities Within a Sovereign Asset-Liability Framework

Important research has already been made on the potentially destabilizing fiscal impact of contingent liabilities. Additional insights can be gained by working within a broader conceptual framework based on the government’s balance sheet. This approach would place contingent liabilities alongside other sovereign exposures arising from both assets and liabilities. A number of sovereigns using asset-liability frameworks have assigned risk monitoring and policy formulation functions for managing risk originating from CL to debt offices. It seems to be a logical step extending the infrastructure available for risk management of sovereign debt to CL, since techniques and skills required are in both cases the same. Given the risks involved for most emerging economies from recent crises, it is expected that this pattern will be followed by more countries in the future. Risk Management of Contingent Liabilities Within a Sovereign Asset-Liability Framework