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Debt Sustainability Assessment: The IMF Approach and Alternatives

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Abstract

Debt sustainability is an essential attribute of good macroeconomic policies but its precise definition is elusive and its assessment is even more challenging. The IMF has developed a sophisticated approach but it must be recognized that, because the future is unknown, any debt sustainability assessment is only valid within the bounds of the underlying guesses. There is no support for the view that added complexity allows for more precise assessments. As a consequence, policy conclusions drawn from debts sustainability exercises must be considered with care. Sacrificing growth – in the short and even in the long run – to imprecisely known risks can be very costly.

Suggested Citation

  • Charles Wyplosz, 2007. "Debt Sustainability Assessment: The IMF Approach and Alternatives," IHEID Working Papers 03-2007, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heiwp03-2007
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    References listed on IDEAS

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    1. Mr. Tito Cordella & Mr. Luca A Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt-Growth Link," IMF Working Papers 2005/223, International Monetary Fund.
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    More about this item

    Keywords

    International Economics; Exchange Rates; External debt;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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