Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods
IMF Working Papers, December 1, 2005
Source details
- Canonical URL
- Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods
Other formats
Bibliographic details
- Authors: Philippe D Karam, Douglas Hostland
- Published: December 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862454.001
Summary
- This paper applies stochastic simulation methods to assess debt sustainability in emerging market economies and provide probability measures for projections of the external and public debt burden over the medium term.
- The paper was authored by Philippe D Karam and Douglas Hostland.
- Publication date: December 1, 2005.
- Pages: 36.
- Volume: 2005.
- Issue: 226.
- Series: Working Paper No. 2005/226.
- DOI: https://doi.org/10.5089/9781451862454.001
- Stock No: WPIEA2005226.
- ISBN: 9781451862454.
- ISSN: 1018-5941.
Key findings on public and external debt vulnerability
- Public debt vulnerability is determined by a set of interrelated factors:
- the volatility of output,
- financial fragility,
- the endogenous response of the risk premium,
- sudden stops in private capital flows.
- External debt vulnerability is sensitive to:
- the determination of the exchange rate,
- the pricing of traded goods.
- The paper provides probability measures for medium-term projections of external and public debt burdens using stochastic simulation methods.
Policy implications and recommendations
- Fiscal policy can act in a preemptive manner to prevent the debt burden from rising significantly over the medium term.
- Effective preemptive fiscal action requires flexibility in fiscal planning.
- Many emerging market economies lack the required flexibility in fiscal planning.
- Emerging market economies face a trade-off between:
- managing the risk of a debt crisis,
- and pursuing other important fiscal policy objectives.
Subject classification and keywords
- Subject: Debt burden, Emerging and frontier financial markets, External debt, Public debt, Return on investment.
- Keywords: current account, debt default, debt sustainability, WP.
Source: IMF Working Paper "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods" by Philippe D Karam and Douglas Hostland, Working Paper No. 2005/226 (December 1, 2005).