An Application of the "Fan-Chart Approach" to Debt Sustainability in Post-HIPC Low-Income Countries

 
Author/Editor: Maximilien Kaffo Melou ; Mariusz A. Sumlinski ; Chris Geiregat
 
Publication Date: June 11, 2014
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: We analyse the debt dynamics in countries that benefited from the HIPC/MDRI debt relief initiatives with a view to applying a probabilistic approach to estimating future debt paths for those countries. We extend the probabilistic approach to public debt sustainability analysis (DSA) proposed by Celasun et al. (2006). This required addressing the twin challenges of a the time period that is too short to conduct country-by-country estimations and the presence, suggested by econometric evidence, of a break–point around 2006 in the dynamics of debt accumulation. To overcome the data limitations, we pool the data and estimate a panel VAR, thus taking advantage of the large cross–section. To account for the break–point, while applying a probabilistic approach to forecasting debt paths, we use the post–break–point information so as not to bias the forecasts of debt paths. As an illustration of the approach we apply the methodology to eight countries with different debt profiles.
 
Series: Working Paper No. 14/102
Subject(s): Debt sustainability analysis | Heavily indebted poor countries | Public debt | Multilateral debt relief initiative | Econometric models | Cross country analysis

 
English
Publication Date: June 11, 2014
ISBN/ISSN: 9781498345033/1018-5941 Format: Paper
Stock No: WPIEA2014102 Pages: 25
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