Toolkit for the Identification, Measurement, Monitoring, and Risk Management of Contingent Sovereign Liabilities
Demaestri, Edgardo C.; Moskovits, Cynthia
Sovereign contingent liabilities materialize when uncertain future events, which are largely beyond the State's control, occur. They can represent a significant burden for public finances and jeopardize public debt management and sustainability. This paper presents a toolkit for the identification and systematization, measurement, monitoring, and reporting of these liabilities. Based on the proposal of a general methodology, the toolkit develops specific estimation methodologies for different categories of sovereign contingent liabilities. These methodologies are then applied in hypothetical exercises, complemented with illustrations taken from the international context. Furthermore, to illustrate how the toolkit might be applied, the paper provides examples that test sensitivity to changes in the variables and parameters that affect contingent liabilities. The study demonstrates that the toolkit can help to achieve improved and better-informed management of public debt and sovereign contingent liabilities, as well as of their associated financial and fiscal risks.