This paper reviews the current state of affairs and thinking on external risk management for developing countries. It tries to identify the reasons behind the limited risk management by sovereigns. Perverse incentives arising from a too generous international safety net, limited access to international financial markets by developing countries arising from low creditworthiness, a limited supply of financial risk management tools suited to developing countries, and a poor supply of skills have inhibited risk management. Another constraint has been the limited attention given to the strategic objectives for risk management. Going forward, the paper identifies actions by international financial markets, countries and international financial institutions that can help improve risk management.

The author reviews the current state of affairs and thinking on external risk management for developing countries. He tries to identify the reasons behind the limited risk management by sovereigns. Perverse incentives arising from a too generous international safety net, limited access to international financial markets by developing countries arising from low creditworthiness, a limited supply of financial risk management tools suited to developing countries, and a poor supply of skills have inhibited risk management. Another constraint has been the limited attention given to the strategic objectives for risk management. Going forward, the author identifies actions by international financial markets, countries, and international financial institutions that can help improve risk management. These actions include GDP-indexed loans and efforts to develop price and weather indexes.

This is an edited collection of essential readings on Reserves Management and Sovereign Wealth Management, from the recent SAA conference organized by the Bank for International Settlements, the European Central Bank and the World Bank Treasury. It offers an exchange of views on technical and implemental issues of financial models.

Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in in the current generation of sovereign asset and liability management (SALM) approaches, including objectives, definitions of relevant assets and liabilities, and methodologies used in obtaining optimal SALM outcomes. These elements are used in developing an analytical SALM framework which could become an operational instrument in formulating asset management and debtor liability management strategies at the sovereign level. From a portfolio perspective, the SALM approach could help detect direct and derived sovereign risk exposures. It allows analyzing the financial characteristics of the balance sheet, identifying sources of costs and risks, and quantifying the correlations among these sources of risk. The paper also outlines institutional requirements in implementing an SALM framework and seeks to lay the ground for further policy and analytical work on this topic.

The paper examines the case for contingent financial instruments for low-income countries (LICs), from both the market and official sector. These include commodity price hedging instruments, contingent debt instruments (commodity-linked bonds, deferred repayment loans), and natural disaster insurance, for example. The paper considers the adequacy of the existing framework of ex post and ex ante support to LICs facing exogenous shocks, and examines the need for and possible constraints to greater availability of contingent instruments. Would there be a role for the international community, particularly the IMF and World Bank, in helping to address the constraints that limit development and use of these instruments?

This pocket-sized reference on key environmental data for over 200 countries includes key indicators on agriculture, forestry, biodiversity, energy, emission and pollution, and water and sanitation. The volume helps establish a sound base of information to help set priorities and measure progress toward environmental sustainability goals.

This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.