IMF Working Papers

The Fiscal Costs of Contingent Liabilities: A New Dataset

Author/Editor:

Elva Bova ; Marta Ruiz-Arranz ; Frederik G Toscani ; H. Elif Ture

Publication Date:

February 8, 2016

Electronic Access:

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Summary:

We construct the first comprehensive dataset of contingent liability realizations in advanced and emerging markets for the period 1990–2014. We find that contingent liability realizations are a major source of fiscal distress. The average fiscal cost of a contingent liability realization is 6 percent of GDP but costs can be as high as 40 percent for major financial sector bailouts. Contingent liability realizations are correlated among each other and tend to occur during periods of growth reversals and crises, accentuating pressure on the budget during already difficult times. Countries with stronger institutions are able to better control and address the underlying risks so that they are less exposed to contingent liability realizations.

Series:

Working Paper No. 2016/014

Subject:

Contingent liabilities Economic sectors Financial crises Financial sector Fiscal risks Global financial crisis of 2008-2009 Public debt Public financial management (PFM)