## Maximum Sustainable Debt Across Countries: An Assessment using P-Theory

_IMF Working Papers, October 31, 2025_

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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

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### 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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_Source: https://www.imf.org/en/publications/wp/issues/2025/10/31/maximum-sustainable-debt-across-countries-an-assessment-using-p-theory-571478_