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....
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/621451560196188919/Governance-Improvements-and-Sovereign-Financing-Costs-in-Developing-Countries http://hdl.handle.net/10986/31888 |
| Summary: | 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. |
|---|