## The State as Financier of Last Resort

_Staff Discussion Notes, October 13, 2022_

## Source details

**Canonical URL:** [The State as Financier of Last Resort](https://www.imf.org/en/publications/staff-discussion-notes/issues/2022/10/11/the-state-as-financier-of-last-resort-523706)

## Other formats

- [Markdown version](/en/publications/staff-discussion-notes/issues/2022/10/11/the-state-as-financier-of-last-resort-523706/index.md)
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## Bibliographic details
- Authors: Bryn Battersby, Raphael A Espinoza, Jason Harris, Gee Hee Hong, Sandra Lizarazo, Paolo Mauro, Amanda Sayegh
- Published: October 13, 2022
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9798400220692.006

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### Summary
- During the COVID-19 pandemic and global financial crisis, governments acted as financiers of last resort through large financial support measures (FSMs) such as loan and guarantee programs and equity injections in firms.
- FSMs are argued to have prevented bankruptcies and attenuated the recession by:
  - increasing firms’ liquidity,
  - reducing risk premiums,
  - boosting confidence.
- FSMs also carry large and long-lasting fiscal costs and risks.
- The note emphasizes that ideally FSMs should be assessed and included in budget plans, while recognizing the need to balance speed and scrutiny during crises.

### Key findings and analysis
- FSMs provided rapid support via loan programs, guarantee programs, and equity injections.
- Macroeconomic effects attributed to FSMs include:
  - fewer bankruptcies,
  - a milder recession,
  - improved firm liquidity,
  - lower risk premiums,
  - higher confidence.
- Trade-offs highlighted:
  - Immediate stabilization benefits versus large and persistent fiscal costs and risks.

### Policy recommendations and management guidance
- Manage legacies of COVID-19 FSMs with targeted policy actions (high-level recommendations presented).
- Prepare for future crises by:
  - establishing frameworks to assess FSMs,
  - including FSMs in budget plans where feasible,
  - striking a balance between the need for rapid deployment and the need for scrutiny and assessment.

### Subjects and keywords
- Subject: Economic sectors, Financial crises, Financial institutions, Financial sector policy and analysis, Health, Money, Public financial management (PFM)
- Keywords: Bailout, Below the line, COVID-19, Credit, credit guarantees program, equity injection, Equity injections, equity purchase, Fiscal policy, Fiscal risks, Global, Government guarantees, government loan, Government loans, Loans, pre-existing FSM framework, Public sector balance sheet, Solvency

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## Content in this bundle

- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/-/media/files/publications/sdn/2022/english/sdnea2022003.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/-/media/files/publications/sdn/2022/english/sdnea2022003.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/staff-discussion-notes/issues/2022/10/11/the-state-as-financier-of-last-resort-523706_