Assessing public debt sustainability under COVID‐19 uncertainty: Evidence from Côte d'Ivoire

Sassire Napo

African Development Review, 2022, vol. 34, issue S1, S141-S160

Abstract: This article investigates public debt sustainability, in the context of a novel exogenous shock, by proposing a realistic forecasting procedure. The procedure implies the combination of a Bayesian VAR model and a nonlinear fiscal reaction model to derive a large number of simulated public debt paths and construct a probabilistic debt sustainability indicator. Annual data covering the period from 1970 to 2019 are used in the African context, with Côte d'Ivoire as a case study. Forecasts suggest low probabilities of non‐increasing trend and well‐contained upside risks (16%–27%) in Côte d'Ivoire for the forecasting period 2021–2024, regardless of the scenario underlying the evolution of COVID‐19 and suggesting that the country remains vulnerable to debt distress risks. Government should promote a sound and reliable debt management system to mitigate such risks. Results also highlight the importance of domestic resources mobilization in reducing the country's fiscal vulnerability and building a sustainable post‐COVID recovery.

Date: 2022
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https://doi.org/10.1111/1467-8268.12649

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