External Borrowing Research Articles

Impact of government budget deficits on public health sector output in Nigeria

The study examined the impact of government budget deficits on the public health sector output in Nigeria over a period of 1980 to 2018. The specifically study sought to: investigate the impact of government budget deficits affect the public health sector output in Nigeria, ascertain the impact of external borrowing on the public health sector output in Nigeria and evaluate the impact of domestic borrowing budget deficits financing on the public health sector output in Nigeria. The methods of data analysis range from argument dickey fuller unit root test, Johansen co-integration test and finally error correction method. The following results were the basic findings of the study: (1) government budget deficits have positive insignificant impact on public health sector output in Nigeria (t – statistics (0.5663) < t0.05 (1.684); (2) external borrowing of financing budget deficits has negative insignificant impact on Health sector output in Nigeria (t – statistics (-1.2746) < t0.05 (1.684) and (3) domestic borrowing of financing budget deficits has positive significant impact on Health sector output in Nigeria (t – statistics (2.1711) > t0.05 (1.684). This study concludes that the budget deficits of government have positive insignificant impact on Health sector output in Nigeria because more budget allocations are put in health recurrent government expenditure than health capital expenditure whereas health capital expenditure is the engine of growth in health sector output. The study recommended that the Federal Government should commence and continue to execute the National Health Act. Allocation’s map-out for the Basic Health Care Provision Fund (BHCPF) should be drawn directly from the National Health Act, which is not less than 1% of the Consolidated Revenue (CRF) Fund of the Federation and is to flow from the FG's share of revenue.

The Coronavirus Crisis versus Social and Market Economy of Germany

The coronavirus crisis caused by the COVID-19 pandemic has had a significant negative impact on all aspects of the German social market economy. For the first time in history, the crisis was caused by factors of a non-economic nature. They manifested themselves in all economies of the world, including Europe. Since March 2020, the federal and state executive authorities of Germany, along with the introduction of restrictive measures for the population and business, have adopted several large-scale economic and political programmes aimed at preventing bankruptcies of economic entities, preserving jobs and social stability in the country. Along with short-term instruments designed to stop the decline in GDP and give impetus to its growth, the German state pursued an active and coordinated with Brussels structural policy aimed at ensuring an energy and digital transition to a climate-neutral economy, including the overcoming the deficits and problems revealed by the pandemic in the country's economy. To this end, Berlin abandoned the budget surplus policy and switched to large-scale external borrowing to finance programmes to bring economy out of the crisis. The author analyzes the results of the impact of the coronavirus crisis on the economic space of Germany, including aspects of its stress resistance and competitiveness, explores the effectiveness of state policy to counter crisis and assesses the prospects for the development of Russia's leading foreign economic partner in the west of the Eurasian continent.

Does high external debt predict lower economic growth? Role of sovereign spreads and institutional quality

There has been a lengthy debate regarding the relationship between external borrowing and macroeconomic fragility. This paper investigates the predictive power of external debt as an indicator for economic growth to examine the argument that there is a dynamic relationship between external debt and growth. We conduct a panel regression using data from low- and middle-income countries (LMCs) between 1970 and 2018. The results indicate that an increase in total, long-term, or external public debt consistently predicts slowdowns in short- and medium-run growth. Limited evidence on non-linear external debt-growth relationship highlights the fact that external borrowing, especially by the public sector, significantly contributes to macroeconomic fragility. Proxy vector autoregressive (PVAR) estimation also confirms the dynamic causal effect of external sovereign debt expansion on economic slowdowns. Further evidence suggests that even the countries have high borrowing costs, better institutional quality can help mitigate the negative impact of external borrowing on growth.

The Causal Relationship Between Foreign Debt and Economic Growth: Evidence from Commonwealth Independent States

This study investigates the relationship between external borrowing and economic growth in the Commonwealth Independent States during the period 1995–2018. Autoregressive distributed lag (ARDL) model is employed to determine the co-integration relationship among the series and then vector error correction model (VECM) is used to analyse the causality between external debt and income. The obtained results suggest that there is a negative long-term unidirectional causal relationship running from external debt to GDP presenting a strong evidence of existence of debt overhang hypothesis. The possible reasons for this unidirectional causal relationship can be explained by poor management of provided financial resources and incomplete governance in economic transition process along with structural rigidities and immature institutions in these countries which, in the long term, resulted in insufficient capital charged to service external debt. The policymakers in these post-Soviet countries should not use foreign loans to capitalise the deficits in the economies; instead, they should be more determined in employing these funds in the areas that will create national value-added production and, thus, future income. JEL Classification: C10, F34, H63

EFFECTS OF CONCESSIONAL DEBT ON ECONOMIC DEVELOPMENT: A MULTILATERAL AND BILATERAL PERSPECTIVE ON THE WEST AFRICAN MONETARY ZONE

Studies on the contribution of concessional debt to economic development are sketchy. The paucity of empirical studies on this subject is even more glaring in the context of the English-speaking West African countries. Bilateral and multilateral aid donors have intensified the flow of official assistance to the developing countries of the world with the aim to bridge the developmental gap between the less developed countries and the industrialized countries of the world. The question that often arises is whether such aids have yielded the desired results among the recipient countries. Against this backdrop, we examined the effect of concessional debt on the economic development in the West African Monetary Zone (WAMZ) using cross-sectional data from 1975-2014. The panel cointegration and panel unit root tests were employed to test for long-run relationship and stationarity of the series respectively. Our model was analysed with both fixed and random effect panel regression while the Hausman test be used to determine the best and appropriate choice between the two. Our findings reveal that multilateral and bilateral concessional debts have significant positive effect on standard of living in the West African Monetary Zone. The panel cointegration test also indicates that there is no long-run relationship between concessional debt and per capita income. We conclude that inflow of concessional aid from multilateral and bilateral donors has had remarkable influence on the standard of living in the region. We recommend that concessional aid to the less developed countries be intensified. However, recipient countries should have a credible external borrowing guideline scribed in their legislation to check against excessive borrowing and also ensure that aid received is used for the intended (developmental) purposes. External institutions and aid agencies should also be involved in the entire aid administration with aim of ensuring that aid is extended based on need, not political ties. 
 
 JEL: A10; B20; C01
 
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THE POSITION OF THE FINANCIAL COMPONENT IN THE PARADIGM OF MODERN ECONOMIC DIPLOMACY

At the beginning of the 21st century, most subjects of international economic relations announced a course to liberalize the world economy both as a whole and as its individual components. At the same time, under the influence of geopolitical and geo-economic aspirations, state instruments of a protectionist nature were increasingly used. Global economic development has become a hostage to such processes. In such circumstances, the efficiency of individual business entities has begun to decline. Innovative tools were needed to prevent this. One of them was economic diplomacy, which has acquired a special role in providing the promotion of the interests of both national economies as a whole and their individual subjects. At the same time, economic diplomacy itself covers different areas of economic activity and not all of them are investigated to the same extent. The purpose of the article is to study and analyze the financial component of economic diplomacy in modern conditions, the specifics of its formation and development, aimed at improving the national system of promoting national interests both within the state and abroad. To achieve this goal, the research is focused on the following tasks: to consider and analyze the theoretical basis of the financial component of economic diplomacy, to highlight its manifestations in various forms of international economic relations, to determine the main imperatives of state support for international investment partnership. Special attention is paid to the issues of external borrowing and the movement of public debt funds from the point of view of the influence of economic diplomacy on them. Based on the results of this review, a whole number of theoretical conclusions were made, which at the same time establish the basis for further research of the considered problem. Methodology. In the process of preparing the article, methods of scientific abstraction, observation, analysis and synthesis, generalization, as well as statistical and economic methods were used to assess a number of financial and economic indicators of state development in order to identify the weaknesses and prospects for the impact of economic diplomacy tools on them. The information and analytical base for the study are materials and analytical reports of international organizations dealing with the issues under consideration (UNCTAD, IMF, World Bank), regulatory and statistical data of state authorities of Ukraine and the United States, the results of scientific research of modern scientists from different countries. The results of the study show that providing the proper efficiency of foreign economic activity requires the use of a set of tools to promote and support its subjects. Economic diplomacy plays a significant role in this sphere. The development level of international economic relations actualizes the justification of the modern paradigm of the financial component, mechanisms for applying the tools of economic diplomacy in financial issues. All this requires a clear delineation and structuring of object-by-object areas and directions of efforts. Only on this basis, an effective mechanism for implementing the financial component of economic diplomacy can be formed. The practical implications of the scientific research are to find out the current state of economic diplomacy mechanisms in the financial sphere, trends in their development, and potential consequences for other states (including Ukraine). Value/originality. The studied mechanisms and practice of using economic diplomacy in the sphere of the financial component, in particular in issues of interstate investment partnership, external government borrowing, and work with public debt deserve attention from the relevant state structures of Ukraine on the implementation of tools and standards of economic diplomacy in this area. In addition, this study can serve as a basis for further research, since the considered problem contains the significant potential for further investigations in subsequent scientific publications.

Welfare implications of external debt and capital flight in Sub-Saharan Africa (Evidence using panel data modelling)

AbstractThe countries in Sub-Saharan Africa (SSA) have experienced a positive growth rate of over five per cent per year, on average, since their transition from the Heavily Indebted Poor Countries Initiative in 1996 and the Multilateral Debt Relief Initiative in 2006. Despite this growth, poverty and inequality are still very high. Employing the Driscoll – Kraay standard panel estimation method and dataset from 1990 to 2015, this paper sets out to examine the implications of external debt and capital flight on the general welfare of the people. The estimation results reveal that both external debt and capital flight have a welfare inhibiting effect, suggesting that increases in external borrowing or capital flight may lead to a reduction in the welfare of the people in the sub-region. The study, therefore, recommends to policymakers and government in the sub-region the need to tackle the revolving nature of external borrowing and capital flight and take steps to halt all channels through which deservingly acquired capital leaves the sub-region.

Role of External Debt and Trade Deficit in Economic Performance of Pakistan

The purpose of this study is to examine influence of trade deficit and external debt on performance of economy of Pakistan during 1980- 2017. GDP is used as dependent variables while trade deficit, gross capital formation, exchange rate, labor force, manufacturing value added and total external debt are used as explanatory variable. The short-run, long-run association and stationarity of data amongst variables are obtained by applying vector error correction technique and Johansen Co-integration test. The study reveals that there is a statically important and negative influence of the trade deficit on GDP while total external debt also has a harmful impact on GDP. Moreover, results show that there is an optimistic and noteworthy connection among gross capital formation and GDP and Gross domestic product is positively influenced by Exchange rate, labor force and manufacturing value added. The association between total external debt and gross domestic product is negative and significant, it means when total external debit increases gross domestic product decrease. Government of Pakistan should create persistent strategies marked at differentiating economic actions so as to give nation prosperous sources of budget financing instead of trusting much on external borrowings.

PUBLIC DEBT AND ECONOMIC GROWTH – THE CASE OF THE REPUBLIC OF NORTH MACEDONIA

Establishing and maintaining macroeconomic stability and fiscal discipline on the one hand, and stimulating economic activity, by enhancing the quality of public finances, increasing capital expenditures, and enhancing competitiveness in the Macedonian economy, on the other hand, are two opposing objectives that should be pursued by policymakers. Government borrowing, especially foreign borrowing, is an important source of fixed assets to cover public expenditure. However, the sustainability of public debt depends not only on the level of public debt, but also on the structure and successful implementation of policies to boost economic growth. Borrowing for a country with low economic potential and a constant shortage of capital is inevitable, especially external borrowing. However, the structure, purpose of the assets and their multiplier effect on the overall economy are the main criteria for assessing the impact of public debt on the economy. This paper attempts to apply the econometric VAR analysis to examine the correlation and causal relationship between public debt and economic growth rate of the case of the Republic of North Macedonia for the period 2002 - 2017. The variables to be analyzed are: GDP growth per capita, Public debt as a proportion of GDP, Gross Domestic Investment, Interest Rate and Government Spending. For the purpose of this analysis, a Granger causality test has been conducted. The test results indicate that the impact of public debt growth in North Macedonia does not have a significant impact on GDP growth per capita. The other test that is being conducted is a Vector Error Correction Model which shows that public debt is negatively correlated with short run and long run economic growth.

Harnessing land value capture: Perspectives from India’s urban rail corridors

Urban public transportation remains a challenge for Indian cities. The debilitating state of current public transportation infrastructure as well as rising carbon emissions from private vehicles supports that investments be made in public transportation systems that are both efficient and mitigate environmental challenges of reducing carbon emissions. To address the problem, many Indian cities have been experimenting with metro rail systems. Metro rails are capital intensive projects. Given the budgetary constraints and limitations of external borrowing capacity, state governments in India are resorting to land based finances. Land based financing is predicated on the principle of land value capture. A popular mechanism to implement land based financing is to raise revenues through property development or real-estate cross-subsidisation. This study examined two real-estate cross subsidisation projects that were implemented to raise revenues for Bangalore metro project and Kochi metro project each. The study identified some of the key challenges to land based finances in India. In particular, the study analysed conflicts surrounding urban land management as land acquired under the rubric of ‘public purpose’ were transferred for commercial property development to generate finances for the metro projects. The study calls for evaluation of existing policies of land based financing for urban infrastructure projects.

Examining the dynamic effect of COVID-19 pandemic on dwindling oil prices using structural vector autoregressive model

Emergence of COVID-19 pandemic in China hit oil prices most, traded at a negative for the first time ever in the international oil market. In this paper, we examine the dynamic effect on four major oil prices of COVID-19 with reference to China and Nigeria. We use daily frequency data, and employ structural vector autoregressive method for the analysis. We find that the impact of COVID-19 pandemic accounted for smallest shares of movement in Bonny and Daqing oil prices, only 14% in China's Daqing and 17% in Nigeria’ Bonny, and the effect is even weaker on BRENT and WTI, 7% on each price as forecast error parameters indicate. This shows that the impact of infections of COVID-19 can short-lived and leave a minimal impact on economies, but the reaction of the market itself is subject matter. Thus, it is predicted that oil prices are likely to rise in future weeks as oil demand and major economies are expected to fully open and quickly recover. China may need to take advantage of the present low oil price to benefit its economy, while Nigeria may need to be careful in external borrowing binge embarked on to cushion the effect of oil price falls as it may debt-trap the economy.

Local Government Implicit Debt and Corporate R&D Activities：Evidence from Chinese Non-financial Listed Companies

Since the central government implemented the “four-trillion” fiscal stimulus plan in 2008, the implicit debt problem of local governments has increasingly become an important factor affecting macroeconomic stability and economic development. Despite the increasingly stringent restrictions of the central government, local governments still borrow in various ways via Local Government Financing Vehicles (LGFVs), resulting in the continuous expansion of implicit debt. The disorderly expansion of local implicit debt may not only induce “gray rhino” systemic financial risks in the short term, but also worsen the efficiency of resource allocation, “crowd out” the financing and investment of manufacturing companies, and weaken the long-term economic growth of China. Compared with the existing literature, this paper focuses on another important but neglected economic impact of implicit debt expansion: the inhibitory effect on corporate R&D activities and output. In the face of the continuous expansion of the scale of implicit debt and the decline in the growth rate of corporate R&D activities, many observers of the Chinese economy have such questions: Will excessively high levels of local debt inhibit micro-enterprises’ innovation? What is the underlying mechanism of this effect? These are the questions that this paper seeks to answer.Based on the data of non-financial listed companies from 2008 to 2017 and the hand-collected data on the implicit debt of local governments, this paper studies the impact of implicit debt levels of local governments on micro-enterprises’ R&D investment and patent applications. The empirical results show that the level of implicit debt in cities has a significant “inhibitory effect” on the patent applications of local companies, and leads to the reduction of internal R&D expenses. This shows that implicit debt is “squeezing” in both R&D input and output dimensions. Next, we perform the mechanism analysis and find that the reduction of government R&D subsidies and long-term external borrowing are the potential mechanisms. Finally, this paper also conducts a heterogeneity analysis and a robustness test on the main empirical results, and finds that the “crowding-out effect” of implicit debt is mainly reflected in the samples of high-budget constrained companies, state-owned companies and listed companies in non-first-tier cities.This paper demonstrates that the expansion of local government implicit debt may weaken the long-term economic growth momentum of China. To deal with this problem, this paper suggests that: Firstly, a well-functioned municipal bond market with Chinese characteristics should be established as soon as possible, and its risk to the level of return, thus avoiding the “squeeze-out” effect. Secondly, local governments should gradually strip off the debt financing function of LGFVs, and try to transform them into an institution focusing on long-term strategic investment (referring to the Temasek company in Singapore) to help the long-term development of the local economy. Finally, local governments need to establish institutional R&D funds to support the long-term fundamental R&D activities of companies.

Rising External Debt Burden, Increase Financial Stability Risk; the Need for Fiscal Adjustment in Nigeria

The study examines the rising external debt burden, increased financial stability risk; the need for fiscal adjustment. Given that economic sustainability is the prime desire of every economy and considering the continuous accumulation of external borrowings. Our main focus is to investigate the fiscal vulnerability and debt sustainability position of the Nigerian economy. To find out whether the country’s present fiscal position is sustainable? Has the substantial external borrowings in the last two decades of uninterrupted democratic rule significantly supported the growth path of the Nigeria economy? If not, there is need for fiscal adjustment. Our period of investigation spans from 1999 to 2019. Data estimated using the time series based from CBN, Federal Ministry of Finance, IMF/World Bank publications. In analyzing the country’s debt burden/vulnerability, we applied the IMF debt burden indicators under the debt sustainability framework (DSF) for low income countries. Using the descriptive statistic, the study also employed the regression analysis technique to exploits the cause and effect relationship between the nation’s present debt stock, debt servicing obligation and the nominal as well the real economic growth rate. Our findings revealed the following; (i) using the percentile analysis and comparing it with the major debt sustainability bench marks under the IMF/Work Bank specifications, the country’s debt sustainability position was very negligible. The Nigerian situation shows debt sustainability position that fell below the bench marks (ii) the results of our finding also indicates a negative statistically significant relationship that exists between debt stock, servicing payment and both the nominal and real GDP. Based on our results, we concluded that the present fiscal vulnerability position of the country if not checked or curtailed through fiscal adjustment would amount to increasing the financial stability risk capable of causing deterioration in the functioning of the economy. We therefore, suggest amongst other measures that all should be aimed at improving and or enhancing monetary restrains, debt contraction restrains as well evolving and improving existing rules toward achieving fiscal responsibility and discipline.

Impact of National Debt on Economic Growth in Tanzania: 1980-2019

This paper is based on the study that examined the impact of external and domestic debt on economic growth of Tanzania over the period 1980-2019. The study’s specific objectives were; to examine trends of external and domestic debts from 1980 to 2019, to determine long run relationship between external debt stock and economic growth in Tanzania from 1980 to 2019, and to examine the long run relationship between domestic debt and economic growth in Tanzania from 1980 to 2019. The study used time series data of Tanzania collected from the Bank of Tanzania (BOT), National Bureau of Statistics (NBS) and the World Bank indicators. The study used Vector error correction model (VECM) for estimation of the time series since all the variables’ data were stationary in first difference I (1), and there was cointegration within the variables. To ensure the validity and reliability of the data; the study carried out normality test, multicollinearity, heteroscedasticity, and unit root tests. The empirical findings reveal that both external and domestic debt significantly affects the economic growth of Tanzania. The study recommends that the government should promote moderate levels of domestic borrowing which can be sustained as it promotes economic growth if used in productive and efficient avenues. The study further recommends that policymakers should efficiently allocate and develop constraints that will ensure the external borrowing is utilized on more productive and development expenditures, so that the finance is a source of increase in net investment in the country.

Degree of sustainability of current account: evidence from Côte d’Ivoire using a non-linear approach

The current account deficit is a macroeconomic indicator that provides information on the health of an economy. Its sustainability is particularly crucial for developing countries such as Côte d'Ivoire, one of the largest economies in West Africa. Given the country's exposure to external vulnerability, this paper analysed the degree of sustainability of its current account. Beyond this, the study looked at the resilience of the economy to external shocks by examining how exports behave following an asymmetric shock on imports plus interest on external borrowing. To this end, the model developed by Shin et al. (2014) was applied to the intertemporal approach to current account sustainability using quarterly macroeconomic data from 1985q1 to 2017q4. The study found that Côte d'Ivoire's current account balance is sustainable. However, this sustainability is weak in the sense of Hakkio and Rush (1991), thus leading to a high risk of government failure in this respect. Also, the study shows that exports react differently to asymmetric shocks on increased imports, with a return to equilibrium often very slow. Therefore, the strengthening and stability of the socio-political environment is to be encouraged, as well as the implementation of policies aimed at sound public finance management and minimising the economy's vulnerability to external shocks.

Государственные заимствования и их влияние на рост общественного благосостояния

The article is devoted to the study of the role of government borrowing in the system of modern market relations, in which the search for tools to maintain or increase the social welfare of citizens is one of the urgent issues. In conditions of weak economic growth and a slow increase in the standard of living of the population, one of the most significant ways to activate economic growth is precisely the amount of funds raised by the state for solving key social problems. As part of the study, an analysis of internal and external government borrowings of the Russian economic system was carried out, using the tools of the theory of probability and mathematical statistics, the degree of influence of government debt on macroeconomic development was revealed, and ways to optimize government borrowing were proposed.

The impact of public external debt on private investment. Evidence from Zimbabwe under the multi-currency system.

The levels of public debt have grown significantly in both emerging and developed countries even during times of peace. The rising levels of debt pose substantial debt sustainability issues to developing countries including Zimbabwe. A defaulting country usually has limited access to new international credit lines or tends to borrow at a higher cost, due to high perceived country risk premium, making the country a less attractive investment destination. Zimbabwe is currently suffering debt distress and has since the year 2000 struggled to service her external debt from international multilateral financial institutions. Zimbabwe’s external debt continues to pile up due to penalties on defaults. This paper examines the impact of public external debt on private investment in Zimbabwe, using quarterly time-series data for the period 2009 and 2017. The period of study was a period of relative stability when Zimbabwe operated under a multicurrency system. Interest rates, political risk, trade openness and household consumption are control variables of this study. Using the Vector Error Correction Model (VECM), we find that external debt and external debt squared have a negative impact on private investment in the long run. Results suggest that Zimbabwe’s external debt is crowding out private investment. In the short-term, we urge the government of Zimbabwe to apply for debt rescheduling to avoid penalties that have so far contributed to the ballooning of Zimbabwe’s external debt obligations. In the medium term, we urge the government of Zimbabwe to design comprehensive debt and arrears reduction strategies, to reduce Zimbabwe’s external debt to sustainable levels. In the long term, after regaining borrowing rights, we urge the government of Zimbabwe to invest external borrowings in productive ventures, to facilitate debt amortisation. Secondly, we recommend that external debt be invested in education, health and infrastructure, which can potentially stimulate private investment, and thus create a multiplier effect on economic growth. Lastly, we recommend the government to invest foreign loans in sectors where Zimbabwe enjoys a comparative advantage, to ensure reliable export revenue for debt servicing.

A temporal study of the responsiveness of foreign private investment to exchange rate in Nigeria, 1981 – 2018

This study examined the response of foreign private investment flows to fluctuations in foreign exchange rates in Nigeria. The empirical analysis was conducted using ordinary least square Multiple Regression on E-view 10 Econometric model for the period 1981 to 2018. Preliminary analysis was carried out with Jarque Bera normality test and Johnson’s transformation test to confirm normal distribution of data and the transformation is effective. A negative relationship between foreign exchange fluctuation and foreign private investment is found. Also, that Bank lending interest rate, market capitalization, external debts and trade openness have a significant effect on the foreign private capital flows in Nigeria while foreign exchange rate fluctuation does not significantly affect private investment. From the findings of the study, we recommend i) That policymakers in Nigeria should seek and implement appropriate exchange rate that will boost foreign private investment; ii) Ensure enlarge trade relationship by allowing international organizations and citizens of other countries access to the financial market in the domestic economy; iii) They should discourage external borrowing to significantly reduce debt service burden.

External debt sustainability in West African countries

PurposeThis paper aims to apply the debt sustainability framework using various ratios to review the current state of sovereign debt of Economic Community of West African States (ECOWAS) member countries.Design/methodology/approachDebt sustainability framework using various ratios (which include the present value approach, Country Policy and Institutional Assessment debt policy assessment ranking and solvency ratio of external debt) for the period 2010 and 2017 were used for the analysis to determine external debt sustainability and solvency of ECOWAS members.FindingsThe findings indicate that most ECOWAS countries are already turning at the unsustainable debt path and may renege in their debt obligations, thus creating a vicious cycle of external borrowing that could lead to capital flight.Originality/valueThis paper offers the empirical evidence to identify which of the ECOWAS countries are already at the threshold of external debt stress, and in the likelihood to renege on their debt obligations.

Sovereign external borrowing and multilateral lending in crises

Multilateral development banks (MDBs) are key players in the International Financial Architecture and an important source of external finance for governments. Beyond their impact to foster development in recipient countries, understanding the behavior of MDB flows is important to assess their contribution to macroeconomic stability. This paper studies the co-movement of sovereign lending from MDBs with private sovereign lending and their dynamics during fiscal crises. The paper finds that unlike private lending, multilateral sovereign lending does not retrench in most fiscal crises. It also finds synchronization between multilateral development banks and the International Monetary Fund during fiscal crises, particularly in some regions. Event analyses show that this synchronization persists after several periods. Taken together, our results strongly support the notion that MDBs play an important role in crisis mitigation and suggest that this role neither erodes the discipline between International Financial Institutions within the International Financial Architecture, nor it creates incentives towards fiscal mismanagement in recipient countries.