Do Financial Markets Value Quality of Fiscal Governance?

Kady Keita, Gene Leon and Frederico Lima

No 2019/218, IMF Working Papers from International Monetary Fund

Abstract: We examine the link between the quality of fiscal governance and access to market-based external finance. Stronger fiscal governance is associated with improvements in several indicators of market access, including a higher likelihood of issuing sovereign bonds and having a sovereign credit rating, receiving stronger ratings, and obtaining lower spreads. Using the more granular information on quality of fiscal governance from Public Expenditure and Financial Accountability (PEFA) assessments for 89 emerging and developing economies, we find that similar indicators of market access are correlated with sound public financial management practices, especially those that improve budget transparency and reporting, debt management, and fiscal strategy.

Keywords: WP; sovereign bond; market; credit rating; market access; Fiscal governance; public financial management; sovereign bond issuance; PEFA assessment; access indicator; PEFA score; Sovereign bonds; Credit ratings; Yield curve; Public Expenditure and Financial Accountability (PEFA); Global; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 29
Date: 2019-10-11
New Economics Papers: this item is included in nep-cwa
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