The State as Financier of Last Resort

Bryn Battersby, Raphael Espinoza, Jason Harris, Gee Hee Hong, Sandra Lizarazo, Paolo Mauro and Amanda Sayegh

No 2022/003, IMF Staff Discussion Notes from International Monetary Fund

Abstract: 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.

Keywords: Fiscal policy; Below the line; Equity injections; Government guarantees; Government loans; Bailout; Fiscal risks; Public sector balance sheet; equity injection; credit guarantees program; pre-existing FSM framework; government loan; equity purchase; Loans; COVID-19; Solvency; Credit; Global (search for similar items in EconPapers)
Pages: 36
Date: 2022-10-13
New Economics Papers: this item is included in nep-ban
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