COVID-19: Fiscal Implications and Financial Stability in Developing Countries

The COVID-19 pandemic has been unlike any other crisis that we have experienced in that it hit all economies in the world at the same time, compromising the risk-sharing ability of nations. At the onset of the pandemic, the World Bank (WB) and the International Monetary Fund (IMF) jointly pledged 1.16 trillion U.S. dollars to help emerging economies deal with COVID-19. Would this amount have been enough to preserve financial stability in a worst case scenario, and what were the fiscal implications of the pandemic? In this article we aim to answer these questions by documenting the size of the fiscal measures implemented by different countries, the aid they received from the IMF and the WB to finance those fiscal measures, and the resulting changes in gross debt, debt composition and maturity, and fiscal deficits. We find that given the amount of debt that was maturing in Asia and Latin America in 2020 and 2021, if there had been a rollover crisis due to lack of demand for their newly issued debt, then what was pledged by the WB and IMF at the onset of the pandemic would not have been enough to preserve financial stability. However, there was no rollover crisis, and although fiscal deficits got considerably worse in 2020, they improved in 2021, albeit leaving gross debt at higher levels than those observed before the pandemic.