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

Julie A Kozack

No 05/09, 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: Financial crisis; Discount rates; International financial markets; Sovereign debt restructuring; Discount rate, net present value, debt, debt restructuring, debt sustainability, debt service, interest, International Lending and Debt Problems, (search for similar items in EconPapers)
Pages: 29
Date: 2005-12-01
New Economics Papers: this item is included in nep-cfn and nep-fmk
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