Debt Sustainability Analyses for Low-Income Countries: An Assessment of Projection Performance

Henry Mooney and Constance de Soyres

No 2017/220, IMF Working Papers from International Monetary Fund

Abstract: This paper develops new error assessment methods to evaluate the performance of debt sustainability analyses (DSAs) for low-income countries (LICs) from 2005-2015. We find some evidence of a bias towards optimism for public and external debt projections, which was most appreciable for LICs with the highest incomes, prospects for market access, and at ‘moderate’ risk of debt distress. This was often driven by overly-ambitious fiscal and/or growth forecasts, and projected ‘residuals’. When we control for unanticipated shocks, we find that biases remain evident, driven in part by optimism regarding government fiscal reaction functions and expected growth dividends from investment.

Keywords: WP; DSA projection; projection error; real GDP; debt sustainability analysis (DSA); sovereign debt; debt relief; macroeconomic forecast; projection accuracy; projection bias; forecast error; growth-investment nexus; fiscal reaction function; balance of payments; IMF; World Bank; Low-Income Countries; IMF DSA database; IMF-World Bank LIC-DSA framework; DSA debt projection; DSA bias; Debt sustainability analysis; Government debt management; Oil prices; Global (search for similar items in EconPapers)
Pages: 48
Date: 2017-10-30
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