IMF Working Papers

Managing Foreign Exchange Rate Risk: Capacity Development for Public Debt Managers in Emerging Market and Low-Income Countries

ByThordur Jonasson, Sheheryar Malik, Kay Chung, Michael G. Papaioannou

August 2, 2024

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Thordur Jonasson, Sheheryar Malik, Kay Chung, and Michael G. Papaioannou "Managing Foreign Exchange Rate Risk: Capacity Development for Public Debt Managers in Emerging Market and Low-Income Countries", IMF Working Papers 2024, 167 (2024), accessed 12/5/2025, https://doi.org/10.5089/9798400287107.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper presents some sound practices for foreign-currency risk management in developing countries and outlines instruments for managing sovereign debt portfolio currency exposures. Adoption of a debt management strategy with well-defined targets for foreign exchange risk is a critical element of public debt risk management. To this end, public debt managers often need to face with complex strategic and operational matters related to public debt hedging practices, including the use of derivatives. In this context, we highlight the main institutional challenges in the management of foreign exchange risk in sovereign debt portfolios and discuss the overall implementation of a foreign exchange risk-management strategy.

Subject: Asset and liability management, Currencies, Debt management, Exchange rate risk, External debt, Financial regulation and supervision, Foreign currency debt, Government debt management, Money, Public financial management (PFM)

Keywords: Africa, Asia and Pacific, Central Asia, Currencies, currency exposure, Debt management, debt portfolio, Exchange rate risk, exchange rate risk risk management, Foreign currency debt, Government debt management, Middle East, North Africa, public debt manager, risk-management strategy, Sub-Saharan Africa

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