NSW Treasury (Treasury) has prepared the NSW Government Foreign Exchange (FX) Risk Policy (the Policy) to assist General Government Sector Agencies and Government Businesses (together, known as “Government Entities”) to manage their FX risk. FX risk can arise from exposure to foreign currencies when Government Entities purchase, sell, or intend to purchase or sell goods and services either directly from/to overseas, or indirectly through domestic providers.

The Policy sets out the core requirements and relevant guidance for Government Entities to manage FX risk exposures, including those exposures arising before or after committing to a sale, purchase, or certain other government transactions.

The Policy is designed to improve project cost certainty and provide a cost-efficient arrangement for managing FX risk. It also provides a level of flexibility when Government Entities determine appropriate strategies to manage the identified risk.

In supporting the State’s focus on financial risk management, the Policy ensures that FX risk is managed transparently, consistently and at the lowest cost and/or risk to the State. This Policy is the first in a series of updates to Treasury’s risk management framework, which will be developed to promote the consideration, identification and management of a broad range of financial risks that Government Entities and the State are subject to (e.g. commodity risk, interest rate risk).

The Policy applies to all Government Entities, other than where FX exposures are part of a Government Entity’s approved investment strategy within the scope of its investment powers.

In 2013 Treasury committed to the Financial Management Transformation (FMT) program to improve financial governance across the NSW public sector. One pillar of the FMT program is the development of new financial legislation establishing a single framework for public sector financial management, namely the Government Sector Finance Bill 2018 (NSW) (the GSF Bill).

This Policy applies to Government Entities as at 1 July 2018, however, we note the intended introduction of the GSF Bill in the near future. In this regard, while it is intended that the objective and substance of the Policy will remain the same, Treasury will review the Policy to ensure consistency with the terminology used and relevant requirements set out in the GSF Bill if it is passed at Parliament and subsequently enacted.

This Policy replaces and supersedes the FX risk policy contained in the Treasury Management Policy (TPP07-7), taking effect from 1 July 2018.

See attachment PDF for the NSW Government Foreign Exchange Risk Policy (TPP18-03).