Staff Discussion Notes

The State as Financier of Last Resort

By Bryn Battersby, Raphael A Espinoza, Jason Harris, Gee Hee Hong, Sandra V Lizarazo Ruiz, Paolo Mauro, Amanda Sayegh

October 13, 2022

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Bryn Battersby, Raphael A Espinoza, Jason Harris, Gee Hee Hong, Sandra V Lizarazo Ruiz, Paolo Mauro, and Amanda Sayegh. The State as Financier of Last Resort, (USA: International Monetary Fund, 2022) accessed December 21, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

During the COVID-19 pandemic and global financial crisis, governments swiftly served as financiers of last resort through large financial support measures (FSMs) such as loan and guarantee programs and equity injections in firms. This Staff Discussion Note argues that such FSMs prevented bankruptcies and attenuated the recession by increasing firms’ liquidity, reducing risk premiums, and boosting confidence. But FSMs also carry large and long-lasting fiscal costs and risks. The note presents recommendations for managing the legacies of the COVID-19 programs and preparing for future crises. Ideally, FSMs should be assessed and included in budget plans, though a balance needs to be struck between speed and scrutiny.

Subject: Economic sectors, Financial crises, Financial institutions, Financial sector policy and analysis, Health, Money, Public financial management (PFM)

Keywords: Bailout, Below the line, COVID-19, Credit, Credit guarantees program, Equity injection, Equity injections, Equity purchase, Fiscal policy, Fiscal risks, Global, Government guarantees, Government loan, Government loans, Loans, Pre-existing FSM framework, Public sector balance sheet, Solvency

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Staff Discussion Notes No. 2022/003

  • Stock No:

    SDNEA2022003

  • ISBN:

    9798400220692

  • ISSN:

    2617-6750

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