Valuation of Credit Guarantees to State-owned Enterprises
Guarantees to back state-owned enterprise (SOE) borrowing are one of the most significant contingent liabilities that the public sector has had to face. Particularly in times of crisis, credit guarantees are an important solution for financing SOEs. It is, however, essential to fully measure their risks to adequately manage the public sector balance sheet. This note examines this question and presents a simple credit guarantee valuation methodology as a first step toward sound management of the financial risks linked to SOEs.