Support for supranationals: what is the cost for sovereigns?

Eric Paget-Blanc (), Arnaud Louis, Khamro Ruziev, Enrique Bernárdez () and Nicky Perry ()
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Eric Paget-Blanc: CRESEM - Centre de Recherche sur les Sociétés et Environnements en Méditerranées - UPVD - Université de Perpignan Via Domitia, LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]

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Abstract: The cost of support to supranational institutions is relatively limited for most sovereigns. On average, legally binding obligations, which constitute a contingent liability, represent 1.4% of GDP. However, for some countries, it represents a much higher amount. Higher commitments may affect sovereigns' propensity to support and the assessment made by Fitch Ratings of the extraordinary support, a key rating factor in supranationals' ratings assessment. Commitments to Supranationals The 1.4% of GDP average commitment for sovereigns includes guarantees and indirect commitments, such as maintenance obligations (legal obligation to provide sufficient resources to an entity) and callable capital (callable only in financial stress). It does not take into account support provided as a result of share ownership, which is deemed a ‘weak' form of support. Given the high ratings of European and regional MDBs, the likelihood that these contingent liabilities will materialise into actual disbursements for sovereigns seems very low. EU Absorbs Half of Global Commitments This includes guarantees provided by European countries to EFSF, callable capital in the EIB, CEB and ESM, and budget support to the EU and Euratom. Germany and France appear to be the largest sponsors of supranational institutions in absolute terms. Such commitments amount to 4.3% and 5.1% of their respective GDP.

Date: 2019-11-26
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Published in Special report, Fitch Ratings. 2019

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