The management of government debt and assets has important implications for fiscal positions. Debt managers aim to secure non-interrupted funding at lowest medium-term costs subject to risks. Massive crisis-related increases in government debt in most OECD countries and increased risks on the asset side of government balance sheets may imply attaching a larger weight to avoiding risk than prior to the crisis, suggesting to extend debt maturities, possibly above pre-crisis levels. There are a number of trade-offs. Choices on the debt maturity structure interact with unconventional monetary policies. By driving down longer-term yields, the latter increase incentives to extend debt maturities which could counteract the initial monetary policy goal. High debt raises the temptation for eroding it via inflation, but the effectiveness of such policy seems to be limited and might be costly in the long run. Moreover, debt management needs to contribute to ensuring appropriate liquidity and functioning of government bond markets. Building financial assets can be appropriate for some purposes, such as prefunding future temporary spending or transferring wealth to future generations, but the risks are that accumulated funds might be used for current spending or tax reductions. In addition, assets might do little to hedge risks associated with debt servicing costs. Non-financial asset sales can help improve the fiscal situation, but purely revenue-driven privatisations without appropriate regulatory provisions addressing potential market failures should be avoided. Successful balance sheet management requires transparent, accurate and comprehensive measures of not only current but also future assets and liabilities.
