Linkages Between Fiscal Policy and Financial (In)Stability

The subject of this research is to analyze a number of factors that impact the quality of public finances in the selected post-socialist South East countries (SEE). In the theoretical part of the paper we have selected and analyzed the factors (variables). The following key factors of influence (as independent variables) were included: socialist heritage, politicization as an abuse of macroeconomic policies, instability of institutional environment, human capital deficits in the area of public finances, and financial accountability deficits.In the quantitative part, the level of selected factors was assessed on the quality level of public finances in the observed countries. The hypothesis was that the factors selected had a very significant impact on the quality of public finances.Mathematical model based on multiple linear regression analysis was created in order to explain the functional relationship between the dependent variable: the quality level of public finances and the selected independent variables. The goal is to estimate the expected mean of the dependent variable (Y) based on individual estimates of the respondents.Regarding the respondent's perception, the Likert scale (1.0, 0.5, 1. 0, 1.5, 2.0, 2.5, 3.0, 3.5, 4.0, 4.5, 5,0) was used, where 1.0 indicates the lowest impact and 5.0 indicates the highest impact. Based on their best knowledge, experience, and (or) intuition, the respondents were asked to assess the dependent variable in the model and independent variables. The empirical data obtained, qualitative and quantitative, have confirmed the hypothesis.

Section: Resultsmentioning

confidence: 99%

Section: Macroeconomic Policy-politicalization As An Interest Abuse Omentioning

confidence: 99%

The Quality of Public Finance in the Countries of South-East Europe

Vukčević

Jovović

2020

“…Lehtimäki Praščević and Ješić (2019), central bankers have to follow accurate monetary policies in order to achieve the stabilization of inflation and output, but a precondition to this is a credible policy-making, which could miti-gate negative consequences of the recent very low interest rates. For the sake of financial stability, fiscal policy can be also used (Dumičić, 2019).…”

Section: Discussionmentioning

confidence: 99%

Monetary Policy after the Great Moderation

Peña

2020

The interferences among some financial, economic and monetary variables are checked as an indicator of economic performance in the long run and for the monetary policy applied between the Great Moderation (GM) of 1987-2001 and the Global Financial Crisis of 2007-2009. For achieving this target, some Granger causality tests are applied to GDP growth, credit growth, and lending interest of 36 countries of the EU and the OECD for the full sample of 1987-2012 and the sub-sample of 2002-2007. Results corroborate the interferences among these variables for the discretionary monetary policy applied immediately after the GM, within the “Ad Hoc Era” or “lax period”, and independence when monetary policy was correctly applied and rules-based.

“…This practice directly increases fiscal risk faced by the owners, which in most cases remains unmeasured, as creditors in practice view owners (either the central or the local government) as clients that pose no credit risk. The risk arising from the SOEs can contribute to the financial instability which depends on government's financial position or, more precisely, on market participants' perception of its prudency (Dumičić, 2018). Ter-Minassian (2017) concludes that, to minimise fiscal risks, it is essential that the SOEs' access to financing be contained within limits consistent with their debt servicing capacity, in both the short and the long term.…”

Section: Review Of Literaturementioning

confidence: 99%

Financial Borrowing by Local State-Owned Enterprises in Serbia: An Assessment of National Practice

Živanović

Đulić

Jolović

2020

Serbian local state-owned enterprises (SOEs) owed in excess of EUR 220mn in late 2015, with estimates reaching a much higher figure. According to the national Fiscal Council, underinvestment by local governments amounted to some EUR 250mn annually. This paper looks at insufficient commercial borrowing by local SOEs trying to identify the causes of this financing gap by looking at two aspects: on one hand, we look at quantitative and qualitative inputs provided by local SOEs for credit analysis that may cause significant information asymmetries, and, on the other, we consider the possibility that bank credit analyses, even if done properly, could reveal that these firms are unable to borrow from banks.The research has revealed that the length and efficiency of the bank credit approval process is dictated by: the need to properly organise qualitative and quantitative SOE information and ensure that it reflects the actual state of affairs; the poor quality of financial statements of SOEs and their pro forma annual business planning and reporting; a common lack of appropriate revaluation of future income; and an existent drawback related to ownership over fixed assets that are considered as a public property in Serbia (rather than as a property of the SOE that uses them).On the other hand, banks do not distinguish sufficiently between private firms and SOEs. This does not allow banks to account for issues specific to SOEs such as the spillover of fiscal risk, corporate governance, relationships between the owner and its SOEs, economic and social objectives, and the like. The frequent inability of local SOEs to provide mortgages as collateral, coupled with the restriction on guarantees from local governments, nearly completely preclude lending for large-scale and long-term investment.We conclude that local SOEs have a limited access to finance due to information asymmetries caused by unsuitable qualitative and quantitative inputs made by SOEs in the credit analysis process. Nevertheless, appropriate credit analyses reveal that these companies can be able to borrow commercially, especially in lower amounts and at shorter maturities which could mitigate underinvestment by local SOEs.