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Government Financial Assets and Debt Sustainability

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  • Ms. Camila Henao Arbelaez
  • Nelson Sobrinho

Abstract

Do government financial assets help improve public debt sustainability? To answer this question, we assemble a comprehensive dataset on government assets using multiple sources and covering 110 advanced and emerging market economies since the late 1980s. We then use this rich database to estimate the impact of assets on two key dimensions of debt sustainability: borrowing costs and the probability of debt distress. Government financial assets significantly reduce sovereign spreads and the probability of debt crises in emerging economies but not in advanced economies, and the effect varies with asset characteristics, notably liquidity. Government finacial assets also help discriminate countries across the distribution of sovereign spreads, thus signaling information about emerging economies’ creditworthiness.

Suggested Citation

  • Ms. Camila Henao Arbelaez & Nelson Sobrinho, 2017. "Government Financial Assets and Debt Sustainability," IMF Working Papers 2017/173, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/173
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    Cited by:

    1. Matteo Ruzzante, 2018. "Financial Crises, Macroeconomic Shocks, and the Government Balance Sheet: A Panel Analysis," IMF Working Papers 2018/093, International Monetary Fund.
    2. Ricardo Sabbadini, 2018. "International Reserves Management in a Model of Partial Sovereign Default," Working Papers, Department of Economics 2018_14, University of São Paulo (FEA-USP).
    3. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: Simulating a sovereign wealth fund for the UK's oil and gas resources, past and future," Energy Policy, Elsevier, vol. 139(C).
    4. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future," LSE Research Online Documents on Economics 103564, London School of Economics and Political Science, LSE Library.
    5. Ricardo Sabbadini, 2017. "Overcoming the Original Sin: Gains from Local Currency External Debt," Working Papers, Department of Economics 2017_27, University of São Paulo (FEA-USP).
    6. Mr. Seyed Reza Yousefi, 2019. "Public Sector Balance Sheet Strength and the Macro Economy," IMF Working Papers 2019/170, International Monetary Fund.
    7. Jean-Marc Fournier, 2019. "A Buffer-Stock Model for the Government: Balancing Stability and Sustainability," IMF Working Papers 2019/159, International Monetary Fund.
    8. Jean-Marc Fournier & Philipp Lieberknecht, 2020. "A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance," IMF Working Papers 2020/033, International Monetary Fund.

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