COVID-19: fiscal implications and financial stability in developing countries

Praew Grittayaphong and Paulina Restrepo-Echavarria

No 2022-028, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The COVID-19 pandemic is unlike any other crisis that we have experienced in that it hit all economies in the world at the same time, compromising the risk sharing ability of nations. At the onset of the pandemic, the World Bank (WB) and the International Monetary Fund (IMF) jointly pledged 1.16 trillion dollars to help emerging economies deal with COVID-19. Would this amount have been enough to preserve financial stability in a worst case scenario? What were the fiscal implications of the pandemic? In this paper we aim to answer these questions by documenting the size of the fiscal measures implemented by different countries, the aid they received from the IMF and the WB to finance those fiscal measures, the resulting changes in gross debt, debt composition and maturity, and fiscal deficits. We find that given the amount of debt that was maturing in Asia and Latin America in 2020 and 2021, if there had been a rollover crisis due to lack of demand for their newly issued debt, then what was pledge by the WB and IMF at the onset of the pandemic would not have been enough to preserve financial stability. However, there was no rollover crisis, and although fiscal deficits got considerable worse in 2020, they improved in 2021, albeit, leaving gross debt at higher levels than those observed pre-pandemic.

Keywords: COVID-19; rescue packages; debt maturity; fiscal deficits (search for similar items in EconPapers)
JEL-codes: E62 E65 F34 H12 H62 H63 H84 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-09-22
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Journal Article: COVID-19: Fiscal Implications and Financial Stability in Developing Countries (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:94810

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DOI: 10.20955/wp.2022.028

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