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Beyond the Optimistic Curse: A New Multiscenario Approach to Debt Sustainability Assessment

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  • Bassem Kamar
  • Damyana Bakardzhieva

Abstract

While a careful and accurate debt sustainability assessment (DSA) is crucial for an efficient macroeconomic management, the most widely used framework introduced by the International Monetary Fund (IMF) suffers from several drawbacks that render its results overoptimistic and misleading. In this article, we correct the methodology by demonstrating how policy makers can develop country-specific “intermediate” forecasts of the determinants of debt dynamics, in addition to coherent “optimistic” and “pessimistic” scenarios. Our application to the case of Egypt illustrates that the debt-to-GDP ratio could increase to more than 100 percent by 2015, in contrast with the 61 percent projected by the IMF in 2010.

Suggested Citation

  • Bassem Kamar & Damyana Bakardzhieva, 2016. "Beyond the Optimistic Curse: A New Multiscenario Approach to Debt Sustainability Assessment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 110-122, January.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:1:p:110-122
    DOI: 10.1080/1540496X.2016.1105686
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