Governance Improvements and Sovereign Financing Costs in Developing Countries

Governance Improvements and Sovereign Financing Costs in Developing Countries

More and more developing country governments are tapping the global debt capital markets. Thisis increasing the amount of finance available for development, but at a considerably higher costthan traditional external borrowing on concessional terms....

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Main Authors: Brown, Michael, Sienaert, Alex
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2019
Subjects:
GOVERNANCE
INTERNATIONAL CAPITAL MARKETS
DEBT MARKETS
DEVELOPMENT FINANCE
COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT
CPIA SCORES
GOVERNMENT FINANCE
Online Access:http://documents.worldbank.org/curated/en/621451560196188919/Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries
http://hdl.handle.net/10986/31888
id okr-10986-31888
recordtype oai_dc
spelling okr-10986-318882021-05-25T09:24:47Z Governance Improvements and Sovereign Financing Costs in Developing Countries Brown, Michael Sienaert, Alex GOVERNANCE INTERNATIONAL CAPITAL MARKETS DEBT MARKETS DEVELOPMENT FINANCE COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT CPIA SCORES GOVERNMENT FINANCE More and more developing country governments are tapping the global debt capital markets. Thisis increasing the amount of finance available for development, but at a considerably higher costthan traditional external borrowing on concessional terms. Using a novel methodology based onestimating sovereign credit ratings using the Moody's scorecard, and examining the associationsbetween these ratings and the World Bank's Country Policy and Institutional Assessment (CPIA)scores, this paper examines how making improvements in the quality of economic policies andinstitutions can help lower governments' financing costs. Better CPIA scores are associated withbetter estimated ratings and materially lower financing costs; on average, improvements which aresufficient to increase a CPIA indicator score by 1 point are associated with interest costs which are lower by about 170 basis points. Estimated cost savings are the largest for countries with weaker initial ratings and commensurately high external debt issuance costs, consistent with governance concerns contributing significantly to the large risk premia faced by weaker borrowers. 2019-06-14T19:39:22Z 2019-06-14T19:39:22Z 2019-06 Working Paper http://documents.worldbank.org/curated/en/621451560196188919/Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries http://hdl.handle.net/10986/31888 English MTI discussion paper,no. 14; CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic GOVERNANCE
INTERNATIONAL CAPITAL MARKETS
DEBT MARKETS
DEVELOPMENT FINANCE
COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT
CPIA SCORES
GOVERNMENT FINANCE
spellingShingle GOVERNANCE
INTERNATIONAL CAPITAL MARKETS
DEBT MARKETS
DEVELOPMENT FINANCE
COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT
CPIA SCORES
GOVERNMENT FINANCE
Brown, Michael
Sienaert, Alex
Governance Improvements and Sovereign Financing Costs in Developing Countries
relation MTI discussion paper,no. 14;
description More and more developing country governments are tapping the global debt capital markets. Thisis increasing the amount of finance available for development, but at a considerably higher costthan traditional external borrowing on concessional terms. Using a novel methodology based onestimating sovereign credit ratings using the Moody's scorecard, and examining the associationsbetween these ratings and the World Bank's Country Policy and Institutional Assessment (CPIA)scores, this paper examines how making improvements in the quality of economic policies andinstitutions can help lower governments' financing costs. Better CPIA scores are associated withbetter estimated ratings and materially lower financing costs; on average, improvements which aresufficient to increase a CPIA indicator score by 1 point are associated with interest costs which are lower by about 170 basis points. Estimated cost savings are the largest for countries with weaker initial ratings and commensurately high external debt issuance costs, consistent with governance concerns contributing significantly to the large risk premia faced by weaker borrowers.
format Working Paper
author Brown, Michael
Sienaert, Alex
author_facet Brown, Michael
Sienaert, Alex
author_sort Brown, Michael
title Governance Improvements and Sovereign Financing Costs in Developing Countries
title_short Governance Improvements and Sovereign Financing Costs in Developing Countries
title_full Governance Improvements and Sovereign Financing Costs in Developing Countries
title_fullStr Governance Improvements and Sovereign Financing Costs in Developing Countries
title_full_unstemmed Governance Improvements and Sovereign Financing Costs in Developing Countries
title_sort governance improvements and sovereign financing costs in developing countries
publisher World Bank, Washington, DC
publishDate 2019
url http://documents.worldbank.org/curated/en/621451560196188919/Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries
http://hdl.handle.net/10986/31888
_version_ 1764475298270674944

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