 |
| [PHOTO: 401(K) 2012/Flickr/CC BY-SA 2.0] |
Washington: The World Bank executed a US$1 billion currency swap
transaction for Morocco to manage its exposure to the US dollar from a recent
bond issuance. This transaction supports Morocco’s currency risk management
strategy by hedging against fluctuations between the US dollar, in which bond
payments will be made, and the Euro.
"This transaction is part of the strategy the Ministry
of Economy and Finance has adopted to actively reduce the exposure of the
Treasury’s debt portfolio to financial risks like interest and exchange rate
risks,” says Nizar Baraka, Minister of Economy and Finance of the Kingdom of
Morocco. “Swapping the currency of the bond issuance from US dollar to Euro
allows the Treasury to improve the currency allocation in the external debt
portfolio with the aim of aligning its structure with the benchmark.”
Morocco has been working with the World Bank over the years
to reduce the risk on its debt portfolio by aligning the interest rate and
currency of its World Bank loan portfolio within prescribed targets.
“The World Bank has been witnessing a strong change in the
culture of sovereign risk management, with many governments taking an active
role in managing risks before they materialize, as opposed to reacting to
shocks after they happen,” says Madelyn Antoncic, Vice-President and Treasurer
of the World Bank.
This is the first transaction in which Morocco has partnered
with the World Bank to manage its risk on liabilities owed to creditors other
than the Bank by executing a currency swap under a Master Derivatives
Agreement. Morocco was among the first countries to sign such an agreement with
the World Bank based on the standard International Swaps and Derivatives
Association (ISDA) Master Agreement, enabling it to access hedging instruments
for managing financial risks.
“The World Bank’s ability to offer our member countries
practical solutions to deal with financial issues is key,” says Inger Andersen,
World Bank Vice President for the Middle East and North Africa region. “This
transaction helps Morocco shield its investment and development programs from
unforeseen currency shocks.”