Basic HTML Version
Managing Sovereign Commodity Exposures in an Uncertain World
Managing Sovereign
Commodity Exposures
in an Uncertain World
Governments and public agencies have always had
a responsibility to support citizens and businesses.
Food and fuel security are often considered amongst
the most important policy areas. The high levels of price
volatility within these two commodity groups mean that
price forecasting can be unpredictable, something which
presents numerous fiscal challenges to government bodies.
Citi has a breadth of experience in supporting sovereign
clients and has worked in partnership with numerous
government agencies to achieve effective solutions on
behalf of their citizens.
There are a multitude of government ministries and agencies (including finance ministries, stabilisation
funds, defence ministries, national oil companies and central banks) involved in the planning and
execution of commodity hedging programs. These entities are often at different stages of development
in their understanding of how the procurement/selling process is managed, how to measure and manage
exposures, and how these combine to affect the overall budget. When one overlays the numerous
subsidies or royalty flows associated with these commodities, unusual and idiosyncratic risk exposures
can occur, causing significant risk to sovereign revenues and stability.
Consequently, the number of sovereign commodity risk management programs has increased, as
individual countries rise to the challenge of improving the living standards for their citizens at a
reasonable cost. Indeed many governments now see the management of commodity risk as being an
essential part of fiscal budgeting, and look to insurance techniques to provide protection from extreme
outcomes. This resonates strongly in an environment where rating agencies consider debt and budgetary
parameters salient, issues which can be managed through hedging programs.
David Walker
Managing Director
Head of Europe, Middle
East & Africa (EMEA)
Public Sector
Banking, Citi
Ajul Haria
Vice President
Corporate & Investment
Banking, EMEA, Citi
Eric Sananes
Global Head of
Corporate Agricultural
Commodities Sales, Citi
Global Commodities, Citi
Oil markets have been hit by
price volatility, but low crude
prices have not yet fed through
into a large supply pullback.