A Stabilization Fund for Countries Facing Market Turmoil

8 Pages Posted: 9 Dec 2020

See all articles by Mark Walker

Mark Walker

Guggenheim Securities

Chris Canavan

Lion's Head Global Partners

Date Written: August 26, 2020


A state-contingent financing facility would be an effective way to help mediate the economic and financial shocks resulting from the COVID-19 pandemic. An SSB could mobilize large amounts of financial resources from the international capital markets and provide cash flow relief to sovereign debtors without market access on attractive terms that reflect both a country’s liquidity requirements and its ability to service its obligations without adding to financial stress. A synthetic stabilization fund (SSB) sponsored by a credible official sector institution could provide state-contingent financing much like traditional stabilization funds. Thus, the amount and timing of funds available to a country, as well as the amount and timing of repayment should be linked to the performance of a proxy for a country’s financial position, such as commodity prices or export revenues. Unlike a traditional stabilization fund, the initial capital of an SSB would be raised in the private markets with credit support from official and bilateral sources to assure long-term funding at reasonable cost.

JEL Classification: F34, G15

Suggested Citation

Walker, Mark and Canavan, Chris, A Stabilization Fund for Countries Facing Market Turmoil (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=3745868 or http://dx.doi.org/10.2139/ssrn.3745868

Mark Walker (Contact Author)

Guggenheim Securities ( email )

330 Madison Avenue
New York, NY 10017
United States

Chris Canavan

Lion's Head Global Partners ( email )

United Kingdom

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