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The Potential Role for Securitizing Public Sector Revenue Flows

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  • Nigel Andrew Chalk
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    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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/106.

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    Length: 30
    Date of creation: 01 Jun 2002
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    Handle: RePEc:imf:imfwpa:02/106

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    1. Ketkar, Suhas & Ratha, Dilip, 2001. "Development financing during a crisis : securitization of future receivables," Policy Research Working Paper Series 2582, The World Bank.
    2. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 850-55, September.
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    Cited by:
    1. Bauer, Christian & Herz, Bernhard & Hoops, Stefan, 2008. "A Cheap Lunch for Emerging Markets: Removing International Financial Market Imperfections with Modern Financial Instruments," World Development, Elsevier, Elsevier, vol. 36(9), pages 1514-1530, September.

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