The PBO testified at a hearing (in Italian) before the Finance Committee of the Chamber of Deputies held as part of the fact-finding inquiry on financial derivatives. In his remarks, the Chairman of the PBO, Giuseppe Pisauro, noted that in the past the need to hedge risk was probably not the sole reason for the use of derivatives, and that the desire to improve the accounts also played a role. The change in statistical recognition criteria appears to have eliminated this possibility. At present, the main reason for using derivatives is to hedge the risk of an increase in interest rates (as well as exchange rate risk), a risk that currently seems small in view of the small percentage of debt financed with floating-rate securities (less than 9% of the total). The State’s sale of swaptions does not appear to serve a hedging purpose.
For the future, Pisauro emphasised that government must have technical units that are capable of assessing risks and dealing with financial intermediaries on equal terms in order to manage such complex instruments. It would seem advisable for the Ministry for the Economy and Finance to strengthen this line of activity within Directorate II of the Department of the Treasury, whose performance in the conventional management of the public debt (issue policy, etc.) represents an example of excellence. Another crucial factor is accountability to Parliament and the public. Ex ante, it is essential to adopt guidelines on the criteria governing the management of the public debt, which should include guidance on the use of derivatives. Ex post, accountability should be founded on half-yearly reporting that enables users to assess the risk profile of derivatives, both in terms of expected payment flows in subsequent semesters and items directly allocated to the debt. Summary reporting on the impact on the public finances should be provided separately in planning documents, both for definitive figures and forecasts.