core sector communique

Debt Managers Agree “Stockholm Principles” to Help Manage Sovereign Risk and High Levels of Public Debt in an Environment of Elevated Uncertainty

September 9, 2010

The global financial crisis has led to high levels of public debt and sharply elevated sovereign risk. Both public debt and sovereign risk must be managed well to prevent the recent financial crisis from morphing into a sovereign debt crisis that could undermine financial stability and derail recovery in developed and emerging economies. The International Monetary Fund (IMF) has been working actively with debt managers, along with other policy makers, to contain these risks and to articulate basic principles to guide debt management.

“High public debt limits the scope for governments to absorb additional risks in their balance sheets. Managing portfolio vulnerabilities becomes even more significant in the current environment, and debt managers would require a robust framework for doing this effectively,” said Mr. Murilo Portugal, IMF’s Deputy Managing Director. “The composition of a country’s debt, as well as the instruments used to fund a sovereign’s financing needs, becomes as important as the overall level,” Mr. Jose Viñals, Financial Counselor of the IMF added.

The IMF and the Swedish National Debt Office (SNDO) co-hosted in Stockholm the 10th Annual IMF consultations on “Policy and Operational Issues facing Public Debt Management”, during which debt managers and central bankers from 33 advanced and emerging market countries (see attached list) agreed that effective debt management requires that the objectives, rationale, strategies, methods of implementation, and outcomes of debt operations be communicated in a clear and timely manner. 

The “Stockholm Principles” that emerged from this forum are organized around three main areas: framework and operations; the importance of sound market communication strategies; and the need for cautious portfolio risk management. “In tandem with efforts on the fiscal and monetary side, an unequivocal commitment to the practice of these principles could help foster confidence in public debt management, reassure investors, and ease market uncertainty,” Mr. Viñals stated. The “Stockholm Principles” have been drawn from a review of existing debt management practices used in a number of countries, debt capital market advisory services, and good practices outlined in other documents on debt management by the IMF, OECD, and the World Bank.