Review of The Debt Sustainability Framework For Market Access Countries

Policy Papers, February 3, 2021

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Canonical URL: Review of The Debt Sustainability Framework For Market Access Countries

A careful review has revealed significant scope to modernize and better align the MAC DSA with its objectives and the IMF’s lending framework.
The note proposes replacing the current framework with a new methodology based on risk assessments at three different horizons.
Extensive testing has shown that the proposed framework has much better predictive accuracy than the current one.
In addition to predicting sovereign stress, the framework can be used to derive statements about debt stabilization under current policies and about debt sustainability.

Objective: Modernize and better align the MAC DSA with its objectives and the IMF’s lending framework.
Proposed change: Replace the current framework with a methodology based on risk assessments at three different horizons.
Capabilities of the proposed framework:
- Predict sovereign stress.
- Derive statements about debt stabilization under current policies.
- Assess debt sustainability.

Statement: Extensive testing has shown that the proposed framework has much better predictive accuracy than the current one.
Backtesting and performance aspects referenced in keywords: I. backtesting result.