Review of the debt sustainability framework for market access countries published by IMF (11/2020)
“A careful review has revealed significant scope to modernize and better align the MAC DSA with its objectives and the IMF’s lending framework. While the current framework has broadened the Fund’s analysis of debt sustainability, its capacity to predict sovereign stress has been limited. In addition, because the framework relies on several separate indicators/outputs, its results are hard to summarize and communicate. For related reasons, it does not lend itself to supporting the three-zone sustainability assessment (sustainable with high probability; sustainable but not with high probability; unsustainable) required under the exceptional access framework.
This note proposes replacing the current framework with a new methodology based on risk assessments at three different horizons: near-term, based on a multivariate (logit) model predicting sovereign stress over 1–2 years; medium term (5 years) consisting of (i) a debt fanchart to assess prospects for debt stabilization, (ii) a module for more granular analysis of rollover risks, and (iii) triggered stress-tests to model specific risks (e.g. natural disasters, commodity price shocks, banking stress); and optional tools to analyze long-term risks (beyond 5 years). The new framework will require additional data and disclosure in some critical areas (debt coverage, liquid assets, holder and maturity profile of debt, and country-specific risks). This will entail additional resource costs, but is in line with institutional priorities, given rising global debt vulnerabilities. These costs will be contained with the help of automation…”
