IMF Policy Discussion Papers

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

By Julie A Kozack

December 1, 2005

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Julie A Kozack. Considerations in the Choice of the Appropriate Discount Rate for Evaluating Sovereign Debt Restructurings, (USA: International Monetary Fund, 2005) accessed November 24, 2024
Disclaimer: This Policy Dicussion Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset and liability management, Debt restructuring, Debt service, Debt sustainability, Discount rates, External debt, Financial services, Yield curve

Keywords: Associated NPV calculation, Calculations to the choice, Debt restructuring, Debt service, Debt sustainability, Debt-service payment, Default premium, Discount rate, Discount rate range, Discount rates, Financial crisis, Global, Net present value, NPV calculation, NPV cost, NPV estimate, NPV neutral, NPV saving, PDP, Savings from the perspective, Sovereign debt restructuring, Stock concept, Uniform discount rate, Yield curve

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Policy Discussion Paper No. 2005/009

  • Stock No:

    PPIEA2005009

  • ISBN:

    9781451975840

  • ISSN:

    1564-5193

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