Economic Governance Improvements and Sovereign Financing Costs in Developing Countries
Low- and middle-income country governments are increasingly tapping the global debt capital markets. This is increasing the amount of finance available for development, but at a considerably higher cost than traditional external borrowing on concessional terms. Using a novel methodology based on estimating sovereign credit ratings using the Moody’s scorecard, and examining the associations between these ratings and the World Bank’s Country Policy and Institutional Assessment scores, this paper examines how making improvements in the quality of economic policies and institutions can help lower governments’ financing costs. This method aims to overcome the small-sample problem due to the number of rated developing country sovereigns still being relatively limited (although growing). Better economic governance Country Policy and Institutional Assessment scores are associated with better estimated ratings and materially lower financing costs; on average, improvements that are sufficient to increase the Country Policy and Institutional Assessment economic governance indicator score by one point are associated with interest costs that are lower by about 40 basis points, even setting aside the direct impact on ratings of better governance indicators. There are many reasons why improving governance is a good thing. Among them is the potential payoff to the public purse — savings of $40 million or more on a standard $1 billion, 10-year bond.
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| Format: | Working Paper biblioteca |
| Language: | English |
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World Bank, Washington, DC
2021-05
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| Subjects: | GOVERNANCE, PUBLIC FINANCIAL MANAGEMENT, DEBT MANAGEMENT, SOVEREIGN CREDIT RATING, PUBLIC DEBT, SOVEREIGN DEBT, SOVEREIGN BOND MARKET, CAPITAL MARKETS, COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT, FINANCING COSTS, |
| Online Access: | http://documents.worldbank.org/curated/en/565681620234717531/Economic-Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries https://hdl.handle.net/10986/35547 |
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dig-okr-10986355472024-08-09T06:05:39Z Economic Governance Improvements and Sovereign Financing Costs in Developing Countries Abate, Girum Brown, Michael Sienaert, Alex Thomas, Mark GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS Low- and middle-income country governments are increasingly tapping the global debt capital markets. This is increasing the amount of finance available for development, but at a considerably higher cost than traditional external borrowing on concessional terms. Using a novel methodology based on estimating sovereign credit ratings using the Moody’s scorecard, and examining the associations between these ratings and the World Bank’s Country Policy and Institutional Assessment scores, this paper examines how making improvements in the quality of economic policies and institutions can help lower governments’ financing costs. This method aims to overcome the small-sample problem due to the number of rated developing country sovereigns still being relatively limited (although growing). Better economic governance Country Policy and Institutional Assessment scores are associated with better estimated ratings and materially lower financing costs; on average, improvements that are sufficient to increase the Country Policy and Institutional Assessment economic governance indicator score by one point are associated with interest costs that are lower by about 40 basis points, even setting aside the direct impact on ratings of better governance indicators. There are many reasons why improving governance is a good thing. Among them is the potential payoff to the public purse — savings of $40 million or more on a standard $1 billion, 10-year bond. 2021-05-06T14:35:35Z 2021-05-06T14:35:35Z 2021-05 Working Paper Document de travail Documento de trabajo http://documents.worldbank.org/curated/en/565681620234717531/Economic-Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries https://hdl.handle.net/10986/35547 English Policy Research Working Paper;No. 9649 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank application/pdf text/plain World Bank, Washington, DC |
| institution |
Banco Mundial |
| collection |
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| country |
Estados Unidos |
| countrycode |
US |
| component |
Bibliográfico |
| access |
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| databasecode |
dig-okr |
| tag |
biblioteca |
| region |
America del Norte |
| libraryname |
Biblioteca del Banco Mundial |
| language |
English |
| topic |
GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS |
| spellingShingle |
GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS Abate, Girum Brown, Michael Sienaert, Alex Thomas, Mark Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| description |
Low- and middle-income country
governments are increasingly tapping the global debt capital
markets. This is increasing the amount of finance available
for development, but at a considerably higher cost than
traditional external borrowing on concessional terms. Using
a novel methodology based on estimating sovereign credit
ratings using the Moody’s scorecard, and examining the
associations between these ratings and the World Bank’s
Country Policy and Institutional Assessment scores, this
paper examines how making improvements in the quality of
economic policies and institutions can help lower
governments’ financing costs. This method aims to overcome
the small-sample problem due to the number of rated
developing country sovereigns still being relatively limited
(although growing). Better economic governance Country
Policy and Institutional Assessment scores are associated
with better estimated ratings and materially lower financing
costs; on average, improvements that are sufficient to
increase the Country Policy and Institutional Assessment
economic governance indicator score by one point are
associated with interest costs that are lower by about 40
basis points, even setting aside the direct impact on
ratings of better governance indicators. There are many
reasons why improving governance is a good thing. Among them
is the potential payoff to the public purse — savings of $40
million or more on a standard $1 billion, 10-year bond. |
| format |
Working Paper |
| topic_facet |
GOVERNANCE PUBLIC FINANCIAL MANAGEMENT DEBT MANAGEMENT SOVEREIGN CREDIT RATING PUBLIC DEBT SOVEREIGN DEBT SOVEREIGN BOND MARKET CAPITAL MARKETS COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT FINANCING COSTS |
| author |
Abate, Girum Brown, Michael Sienaert, Alex Thomas, Mark |
| author_facet |
Abate, Girum Brown, Michael Sienaert, Alex Thomas, Mark |
| author_sort |
Abate, Girum |
| title |
Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| title_short |
Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| title_full |
Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| title_fullStr |
Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| title_full_unstemmed |
Economic Governance Improvements and Sovereign Financing Costs in Developing Countries |
| title_sort |
economic governance improvements and sovereign financing costs in developing countries |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021-05 |
| url |
http://documents.worldbank.org/curated/en/565681620234717531/Economic-Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries https://hdl.handle.net/10986/35547 |
| work_keys_str_mv |
AT abategirum economicgovernanceimprovementsandsovereignfinancingcostsindevelopingcountries AT brownmichael economicgovernanceimprovementsandsovereignfinancingcostsindevelopingcountries AT sienaertalex economicgovernanceimprovementsandsovereignfinancingcostsindevelopingcountries AT thomasmark economicgovernanceimprovementsandsovereignfinancingcostsindevelopingcountries |
| _version_ |
1807154618941046784 |