Evaluating the Costs of Government Credit Support Programs during COVID-19: International Evidence

January 27, 2023

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Format: Chicago

Gee Hee Hong, and Deborah Lucas. Evaluating the Costs of Government Credit Support Programs during COVID-19: International Evidence, (USA: International Monetary Fund, 2023) accessed December 22, 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

Advanced economies made available more than 5 trillion USD through government-supported credit guarantee and direct loan programs to provide lifelines to firms in the face of the COVID-19 pandemic. Notwithstanding the unprecedented scale of credit made available, an in-depth analysis of the fiscal consequences is missing, and the costs of these programs are not recognized in a transparent way. In this paper, we fill in an important aspect of the fiscal picture by estimating the subsidies that were provided by the largest credit guarantee programs introduced in 2020 in seven advanced economies. We estimate the subsidies on a fair value basis that provides a consistent and comprehensive upfront measure of cost. We explain the logic behind applying a fair value framework in a government context and compare it to alternative approaches. For the programs that we examine, total credit extended totaled 1.7 trillion USD. The subsidy element (cash-equivalent subsidy) is estimated to be 67 percent of loan principal on average (37 percent, excluding the US PPP), with a wide range across programs, from 12 to 100 percent. The variation is explained by differences across programs including eligibility criteria, loan terms, compensation to lenders, and other program design choices.

Subject: COVID-19, Credit, Discount rates, Financial institutions, Financial services, Health, Loan guarantees, Loans, Money

Keywords: COVID-19, Credit, Credit guarantee program, Credit guarantee programs, Discount rates, Europe, Fair-value basis, Fiscal risks, Global, Government Credit support program, Loan guarantees, Loans, Major credit program, Pandemic credit program

Publication Details

Pages:

62
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/016
Stock No:

WPIEA2023016
ISBN:

9798400231971
ISSN:

1018-5941

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