New Report Analyzes Interest Rate Risks and Fiscal Sustainability among EFSD Member States

A recent joint working paper produced by CI and ESFD, entitled “Country-Level Interest Rate Risk Impact on Debt and Fiscal Sustainability: Potential Use of Floating-Rate and Inflation-Indexed Liabilities,” offers an in-depth examination of the effects of rising interest rates on the sovereign debt portfolios of member states of the Eurasian Fund for Stabilization and Development (EFSD). The working paper specifically examines Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan, shedding light on the challenges posed by fluctuating interest rates and their potential impact on fiscal sustainability.

The working paper (Dr. Ghulam Samad of the CAREC Institute (CI), who was one of the contributors) underscores the necessity for countries to adapt their debt management strategies to current economic conditions. “As interest rates rise, it is crucial for governments to explore the benefits of floating-rate and inflation-indexed liabilities to mitigate risks associated with traditional fixed-rate debt,” The authors highlight the significance of adopting innovative financial instruments to maintain fiscal stability.

The working paper also addresses the evolving investment strategies of regional insurance companies, which are increasingly shifting away from government securities due to mark-to-market accounting requirements. This trend underscores the need for policymakers to re-evaluate debt issuance and management practices to ensure economic resilience in a dynamic financial landscape.