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

By Maximilien Kaffo Melou, Mariusz A. Sumlinski, Chris Geiregat

June 11, 2014

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Maximilien Kaffo Melou, Mariusz A. Sumlinski, and Chris Geiregat. An Application of the "Fan-Chart Approach" to Debt Sustainability in Post-HIPC Low-Income Countries, (USA: International Monetary Fund, 2014) accessed September 18, 2024

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.

Subject: Asset and liability management, Debt relief, Debt sustainability, Debt sustainability analysis, External debt, Fiscal policy, Fiscal stance, Public debt

Keywords: Africa, Coefficient estimate, Confidence interval, Debt relief, Debt sustainability, Debt sustainability analysis, Debt sustainablity, Fan chart, Fiscal stance, Global, HIPC, MDRI, MDRI beneficiary, MDRI debt relief, Output gap, Panel data estimation methodology, WB baseline DSA forecast, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/102
Stock No:

WPIEA2014102
ISBN:

9781498345033
ISSN:

1018-5941

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