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Sovereign External Borrowing and Multilateral Lending: Dynamics and Crises

Author

Listed:
  • Lotti, Giulia
  • Avellán, Leopoldo
  • Galindo, Arturo

Abstract

Fiscal policy is procyclical in developing countries. An ample literature has explained this fact and explored its consequences for aggregate cyclical fluctuations. Multilateral Development Banks (MDBs) are an important source of finance for governments and therefore play a role in the execution of fiscal policy. In this paper, we assess whether MDB disbursements to the sovereign commove with government expenditure and with private sovereign lending, during different stances of fiscal policy and during fiscal crises. We find that multilateral lending to the sovereign is correlated with government expenditure and this correlation does not change if the government is running a surplus or a deficit. However, when the sovereign is having a fiscal crisis associated with unsustainable fiscal policy, this relationship disappears for Regional Development Banks (RDBs) and the World Bank (WB). Finally, we find evidence of synchronization between MDBs and IMF during fiscal crises.

Suggested Citation

  • Lotti, Giulia & Avellán, Leopoldo & Galindo, Arturo, 2018. "Sovereign External Borrowing and Multilateral Lending: Dynamics and Crises," IDB Publications (Working Papers) 9342, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:9342
    DOI: http://dx.doi.org/10.18235/0001443
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    Cited by:

    1. Fleiss, Pablo, 2021. "Multilateral development banks in Latin America: Recent trends, the response to the pandemic, and the forthcoming role," Studies and Perspectives – ECLAC Office in Washington 46916, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

    More about this item

    Keywords

    Multilateral Development Banks; International government debt; Capital flows;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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