Fiscal Transparency, Borrowing Costs, and Foreign Holdings of Sovereign Debt

August 24, 2018

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Laurent Kemoe, and Zaijin Zhan. Fiscal Transparency, Borrowing Costs, and Foreign Holdings of Sovereign Debt, (USA: International Monetary Fund, 2018) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the effects of fiscal transparency on the borrowing costs of 33 emerging and developing economies (EMs), and on foreign demand for their sovereign debt. Using multiple indicators, including a constructed one based on the published data in the IMF’s Government Finance Statistics Yearbook, we measure the separate effects of the three dimensions of fiscal transparency: openness of the budget process, fiscal data transparency, and accountability of fiscal actors. The results suggest that higher fiscal transparency reduces sovereign interest rate spreads and increases foreign holdings of sovereign debt, with each dimension of fiscal transparency playing a different role. Availability of detailed cross-country comparable fiscal data, especially for balance sheet items, has shown to increase foreign investors’ willingness in holding EM sovereign debt.

Subject: Budget planning and preparation, Economic and financial statistics, Emerging and frontier financial markets, Financial markets, Fiscal transparency, Government finance statistics, Public debt, Public financial management (PFM)

Keywords: Borrowing costs, Budget planning and preparation, Debt sustainability issue, EM debt, EMBI index, EMBI yield spread, Emerging and frontier financial markets, Emerging market economies, Financial risk, Fiscal transparency, Global, Government finance statistics, Influence investors decision making, Interest rate, Investor inflow, Investors holding, Risk appetite, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/189
Stock No:

WPIEA2018189
ISBN:

9781484373835
ISSN:

1018-5941

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