Maximum Sustainable Debt Across Countries: An Assessment using P-Theory
IMF Working Papers, October 31, 2025
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- Maximum Sustainable Debt Across Countries: An Assessment using P-Theory
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Bibliographic details
- Authors: Yongquan Cao, Wei Jiang, Waikei R Lam, Neng Wang
- Published: October 31, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229028820.001
Approach and Model
- Utilizes the p-theory framework developed by Jiang et al. (2024).
- Incorporates:
- tax distortions,
- asset-pricing components: risk-free rates, convenience yields, and jump-risk premia,
- sovereign default risks.
- Provides a parsimonious yet tractable approach to evaluating maximum sustainable debt across countries and over time.
Calibration and Sample
- Calibrated for a large sample of over 170 countries.
- Publication specifics reported on the source page:
- Pages: 30
- Volume: 2025
- Issue: 223
- DOI: https://doi.org/10.5089/9798229028820.001
- ISBN: 9798229028820
- ISSN: 1018-5941
Illustrative Findings
- Current debt levels in many economies remain within maximum sustainable debt levels.
- Debt burdens in many emerging markets and low-income countries are near their respective sustainable levels.
- A few countries that are in—or at high risk of—debt distress have debt levels exceeding their sustainable thresholds.
- Sustainable debt estimates evolve over time in response to:
- shifts in financial conditions,
- changes in macro-fiscal fundamentals.
Sensitivities and Key Parameters
- Sustainable debt estimates are particularly sensitive to key parameters.
- Sensitivity is most pronounced when interest-growth differentials are narrow.
Subjects and Keywords (as listed on the source)
- Subjects: Asset and liability management, Debt default, Debt limits, Debt sustainability, Expenditure, External debt, Public debt.
- Keywords: asset pricing, convenience yields, debt carrying capacity, Debt default, debt estimate, debt level, Debt limit, Debt limits, Debt sustainability, Global, IMF working papers, maximum sustainable debt, risk premium, sustainable debt.
Source: IMF Working Paper "Maximum Sustainable Debt Across Countries: An Assessment using P-Theory", Yongquan Cao, Wei Jiang, Waikei Raphael Lam, Neng Wang, October 31, 2025.
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