The Potential Role for Securitizing Public Sector Revenue Flows: An Application to the Philippines

Nigel Chalk

No 2002/106, IMF Working Papers from International Monetary Fund

Abstract: Since the mid-1980s, the securitization of future flow receivables has grown in importance as a financing alternative for the public sector. In a world of perfect capital markets, there appears to be little rationale-in terms of reducing the average cost of public sector financing-to resort to secured borrowing. However, for many developing countries, financial markets are far from perfect. In particular, there may be an important role for secured financing where increased uncertainty or financial market volatility leads to credit rationing driven by information asymmetries. Secured financing, however, does not provide a free lunch. Such arrangements subordinate existing and future creditors and, as a result, may raise the cost of future borrowing. In addition, high transaction costs, the thin market in secured instruments, the risk of legal challenges, and reduced budget and debt management flexibility may offset the cost advantage of public sector securitization.

Keywords: WP; flow receivables; reserve account; securitized financing; credit rating; coverage ratio; financing cost; receivables generation; Fiscal policy; international finance; securitization; receivables generation risk; securitization arrangement; debt issue; credit rationing; debt covenant; financing need; future receivables; revenue flow; ticket receivables; Public sector; Debt service; Legal support in revenue administration; Credit ratings; North America (search for similar items in EconPapers)
Pages: 30
Date: 2002-06-01
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Citations: View citations in EconPapers (1)

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