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This chapter provides an overview of the key policy issues addressed in the new landmark OECD study, Advances in Risk Management of Government Debt. Risk management has become an increasingly important tool for achieving strategic debt targets, and is now an integral part of a wider strategic debt management framework based on benchmarks in most OECD jurisdictions.
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This chapter provides a summary overview of risk management practices by OECD debt managers. Although the overview shows that the extent of risk management varies widely across countries, the majority of OECD countries are actively engaged in risk management, with risk typically not managed on a consolidated basis across all government entities.
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The overall purpose of this chapter is to discuss the analytical framework for risk management, and how interest-rate risk management is implemented in practice. While there is agreement on the basic principles of sound and prudent risk management, various approaches exist for the assessment and management of interest-rate risk.
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The principal objective of public debt management is the minimisation of costs subject to a given level of risk. Costs are measured overall as the total costs (interest payments plus/minus the change in Net Present Value – NPV), whereas the contributing interest payments are also reported and evaluated separately in the risk management framework.
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This chapter gives an overview of risk management of the Danish central-government debt. Firstly, the overall framework for centralgovernment debt management is described, followed by considerations with respect to management of market risks in relation to the principle of asset and liability management and the implementation of the borrowing strategy.
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The legal basis for debt management in Finland is derived from a parliamentary authorisation through which the Ministry of Finance submits a proposal to the Council of State authorising the State Treasury to carry out borrowing as an agent of the Ministry of Finance on behalf of the Republic of Finland.
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Agency France Trésor (AFT) was established in 2001 as a government department within the Ministry of Economy and Finance, and is chaired by the Head of the Treasury. Its role is to manage the debt and treasury of the State at the lowest cost to the taxpayer. Although mostly long-term in perspective, this function must be fulfilled with the highest possible degree of risk control.
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The core principles and rules for central government debt management in Sweden are given in the Act on State Borrowing and Debt Management. The government’s right to borrow is based on an annual authorization from Parliament, which is given as part of the decision on the state budget for the subsequent fiscal year.
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The UK Debt Management Office (DMO) was established on 1 April 1998. The DMO’s brief is to carry out the Government’s debt management policy of minimising financing costs over the long term, taking account of risk, and to manage the aggregate cash needs of the Exchequer in the most cost-effective way, in both cases consistently with the objectives of monetary and any wider policy considerations.
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Developments of public debt management since 1989 Public debt management in Poland has a relatively short history. It begins with the political and economic transition started by the collapse of the communism in 1989. Since then, the structure of public debt and its management, including the institutional and market environment, have changed dramatically.