GLOBAL - Participants of the annual consultations held by the International Monetary Fund (IMF) on managing public debt said absolutely safe sovereign debt no longer existed and called for the development of the government bond market.
At the meeting organised earlier this week, senior officials from ministries of finance, central banks and debt offices from 25 countries concluded that credit analysis was now as important as interest rate analysis for funding and debt strategies, given investors' evolving approach to sovereign risk assessment.
They said the crisis had changed the debt management function radically, including the design of funding and debt management strategies.
In this context, the delegates agreed that the need for improved communication with key stakeholders - as well as disclosure of debt portfolios risks on a consistent and comparable basis - had gone up.
Speaking at the event, Takumi Shibata, deputy president and chief operating officer at Nomura Holdings, stressed that sovereign borrowers needed to protect themselves through fiscal soundness, prudent government balance sheet management, robust local bond markets and active communication with investors.
The vice-minister of strategy and finance for Korea, Sung-Kull Yoo, added: "Given the declining growth potential and ageing population, we need to further develop government bond markets to secure fiscal resources for the future."
The delegates also welcomed multilateral initiatives to improve debt sustainability analysis, risk assessment of sovereign balance sheets and the strengthening of associated data gaps.
Jan Brockmeijer, deputy director of the monetary and capital markets department at the IMF, said: "The legacy of high public debt and elevated sovereign risk stemming from the crisis carries far-reaching implications and challenges for debt managers, as well as for debt markets and investors.
"Policymakers need to acknowledge these and should mitigate vulnerabilities by building more robust and resilient sovereign balance sheets."
In addition, the delegates said the financial crisis had also highlighted the need for debt managers and fiscal policymakers to revisit their approach to risk management.
According to them, the changes will help to encompass a wider set of risk factors, including near-term liquidity risks, and exposure to contingent liabilities, especially those arising from the financial sector.