## Pooling Fiscal Risk in the ECCU: Quantifying Savings of a Regional Fund for Stabilization and Investment

_IMF Working Papers, July 16, 2021_

## Source details

**Canonical URL:** [Pooling Fiscal Risk in the ECCU: Quantifying Savings of a Regional Fund for Stabilization and Investment](https://www.imf.org/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832)

## Other formats

- [Markdown version](/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832/index.md)
- [Structured JSON version](/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832/index.json)
- [Bundle manifest](/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832/bundle-manifest.json)

## Bibliographic details
- Authors: Alejandro D Guerson
- Published: July 16, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513588827.001

---

### Summary and objective
- Quantifies the savings obtained from risk pooling with a Regional Stabilization Fund (RSF) for the Eastern Caribbean Currency Union.
- Uses a Monte Carlo experiment to estimate the size of a RSF conditional on probabilities of depletion under specific saving-withdrawal rules.
- Aims to assess stabilization requirements, effects on public investment and debt dispersion, and implications for the stability of the regional currency board.

### Methodology
- Analytical approach: Monte Carlo experiment.
- Scenarios evaluated: RSF sized to meet conditional probabilities of depletion under specified saving-withdrawal rules.
- Rules considered: saving-withdrawal rules and a saving-investment rule that allow reallocation of government consumption savings during booms toward public investment during recessions.

### Key quantitative findings
- Regional risk pooling requires about half of the saving amount relative to the sum of individual-country savings.
- Public investment increases in the range of 0.5-1.5 percent of GDP per year depending on the country, with positive growth dividends.
- The RSF reduces the dispersion of public debt outcomes given cross-country cyclical synchronicity of output and revenue, thereby strengthening the stability of the regional currency board.

### Policy implications and welfare effects
- Reduces overall saving requirements for stabilization through risk sharing across member countries.
- Improves welfare by reallocating government consumption savings accumulated during booms to public investment during recessions.
- Strengthens fiscal and currency-board stability by lowering cross-country dispersion in public debt trajectories.

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2021/english/wpiea2021191-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2021/english/wpiea2021191-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832_