Considerations in the Choice of the Appropriate Discount Rate for Evaluating Sovereign Debt Restructurings

Julie Kozack

No 2005/009, IMF Policy Discussion Papers from International Monetary Fund

Abstract: Assessments regarding the effectiveness of sovereign debt restructurings are often summarized by comparisons of the net present value of debt service before and after the restructuring. These calculations are inherently sensitive to the choice of discount rate. This paper explores issues that arise in selecting discount rates when evaluating sovereign debt restructurings. It suggests using a range of discount rates and centering the analysis around the internal rate of return to assess whether the debt restructuring has generated net present value savings or costs to the debtor.

Keywords: PDP; NPV calculation; NPV saving; debt-service payment; Discount rate; sovereign debt restructuring; financial crisis; net present value; discount rate range; uniform discount rate; NPV cost; default premium; NPV estimate; stock concept; calculations to the choice; savings from the perspective; associated NPV calculation; NPV neutral; Discount rates; Debt restructuring; Debt service; Debt sustainability; Yield curve; Global (search for similar items in EconPapers)
Pages: 29
Date: 2005-12-01
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