A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty

Dale Gray, Elena Loukoianova (), Samuel Westmoreland Malone and Cheng Lim

No 08/40, IMF Working Papers from International Monetary Fund

Abstract: This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Keywords: Debt sustainability; Risk management; Public debt; Reserve management policy (search for similar items in EconPapers)
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Date: 2008-02-01
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