COVID-19, Fiscal Stimulus, and Credit Ratings

28 Pages Posted: 20 Apr 2020

Date Written: April 15, 2020

Abstract

COVID-19 pandemic has rattled the global economy and has required governments to undertake massive fiscal stimulus to prevent the economic fallout of social distancing policies. In this paper, we compare the fiscal response of governments from around the world and its main determinants. We find sovereign credit ratings as one of the most critical factors determining their choice. First, the countries with one level worse rating announced 0.3 percentage points lower fiscal stimulus (as a percentage of their GDP). Second, these countries also delayed their fiscal stimulus by an average of 1.7 days. We identify 22 most vulnerable countries, based on their rating and stringency, and find that a stimulus equal to 1 percent of their GDP adds up to USD 87 billion. In order to fight the pandemic, long term loans from multilateral institutions can help these stimulus starved economies.

Keywords: Fiscal Stimulus, Credit Rating, COVID-19, Multilateral institutions

JEL Classification: E62, O23

Suggested Citation

Balajee, Anuragh and Tomar, Shekhar and Udupa, Gautham, COVID-19, Fiscal Stimulus, and Credit Ratings (April 15, 2020). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=3577115 or http://dx.doi.org/10.2139/ssrn.3577115

Anuragh Balajee

CAFRAL ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

Shekhar Tomar

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

HOME PAGE: http://shekhartomar.com

Gautham Udupa (Contact Author)

CAFRAL ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

HOME PAGE: http://https://sites.google.com/site/gautamudupa/home

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