Director of the Western Hemisphere Department at the International Monetary Fund (IMF), Ilan Goldfajn, said the Washington DC-based financial institution is paying close attention to regional banks’ sovereign debt exposure, particularly there. where recent external shocks have considerably stretched the balance of the public sector. sheets.
“Banks with highly concentrated exposures, especially when it comes to systemically important institutions, can complicate recovery efforts if sovereign debt sustainability risks materialize,” Goldfajn told Caribbean Media. Corporation (CMC) in response to a question about whether regional banks might be excessive. sovereign exposure given escalating debt in the Caribbean region.
He said the risks associated with sovereign debt linkages are best mitigated by governments pursuing sustainable fiscal policies and using available concessional financing opportunities.
“The Fund, as always, stands ready to support the efforts of its members in this area. It is essential that financial supervisors quickly identify pockets of excessive risk exposure, apply and/or tighten exposure concentration limits where warranted, and ensure that banks’ and banks’ loss absorption buffers other financial institutions are commensurate with the risks taken,” added the IMF official. .
Last month, the Secretary General of the Caribbean Community (Caricom), Dr. Carla Barnett, said that the operationalization of an integrated country risk management framework, robust enough to strengthen social safety nets and with the ability to adapt to shocks will enable the region to “build back better” following the various “challenges”, including the coronavirus (Covid-19) pandemic of recent years.
“Now is the time for country risk management to be a key imperative for the Caribbean, as we pave the way for resilience and sustainable recovery from COVID-19 and prepare for other crises that will come. are sure to arise,” Barnett told the inaugural Caribbean conference. Regional Risk Conference jointly organized by the Caribbean Development Bank (CDB) based in Barbados and the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) based in the Cayman Islands.
Asked to expand on the statement attributed to the region’s top official, Goldfajn told the CMC that the IMF stands ready to support countries’ action in response to various shocks, within an integrated framework to provide policy advice, financial support and capacity building.
He said the Fund’s work integrates country risk assessment with policy advice, identifying risks, assessing their likelihood and impacts and discussing policy responses, while capacity development helps countries implement establish effective economic institutions capable of implementing the right policies in response to shocks.
“The newly established Resilience and Sustainability Trust (RST), combined with the additional financing it will help catalyze, would help countries build resilience to external shocks, including climate change and pandemic preparedness, and ensure growth sustainable,” he added.
Central Bank T&T
In its 2020 Financial Stability Report, the T&T Central Bank expressed concern about the high sovereign concentration in the financial system.
“Domestic sovereign concentrations increased during the year. Sovereign exposures represented around 22% of the combined assets of banks, insurers and pension plans.
“The pandemic-induced decline in fiscal revenues and the less than optimistic outlook for near-term economic recovery have significantly increased the potential for spillovers to financial institutions’ balance sheets.”
The Central Bank noted that the government’s rollout of Covid-19 relief in 2020 was funded by borrowing from the banking sector, which increased their exposure to sovereign investments by 17.9% (4.9 billion) compared to a 9.4% decline at the end of 2019.
The Central Bank also pointed out that the banking sector’s holdings of treasury bills increased by $4.2 billion (29.6%), mainly due to the
TT dollar treasury bills accounted for $18.4 billion, or 47.9% of the banking sector’s total investment portfolio in 2020.