The State as Financier of Last Resort
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Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.
Summary:
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.
Series:
Staff Discussion Notes No. 2022/003
Subject:
Economic sectors Financial crises Financial institutions Financial sector policy and analysis Health Money Public financial management (PFM)
Frequency:
occasional
English
Publication Date:
October 13, 2022
ISBN/ISSN:
9798400220692/2617-6750
Stock No:
SDNEA2022003
Format:
Paper
Pages:
36
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