IMF Working Papers

Assessing Bias and Accuracy in the World Bank-IMF's Debt Sustainability Framework for Low-Income Countries

By Andrew Berg, Enrico G Berkes, Catherine A Pattillo, Andrea F Presbitero, Yorbol Yakhshilikov

March 27, 2014

Download PDF

Preview Citation

Format: Chicago

Andrew Berg, Enrico G Berkes, Catherine A Pattillo, Andrea F Presbitero, and Yorbol Yakhshilikov. Assessing Bias and Accuracy in the World Bank-IMF's Debt Sustainability Framework for Low-Income Countries, (USA: International Monetary Fund, 2014) accessed December 30, 2024
Disclaimer: This Working 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

The World Bank and the IMF have adopted a debt sustainability framework (DSF) to evaluate the risk of debt distress in Low Income Countries (LICs). At the core of the DSF are empirically-based thresholds for each of five different measures of the debt burden (the “debt threshold approach” DTA). The DSF contains a rule for aggregating the information contained in these five different variables which we label the “worst-case aggregator” (WCA) in view of the fact that the DSF considers a breach of any one of the thresholds sufficient to indicate a high risk of debt distress. However, neither the DTA nor the WCA has heretofore been subject to empirical testing. We find that: (1) the DTA loses information relative to a simple proposed alternative; (2) the WCA is too conservative (predicting crises too often) in terms of the loss function used in the DSF; and (3) the WCA is less accurate than some simple proposed alternative aggregators as a predictor of debt distress.

Subject: Debt burden, Debt default, Debt sustainability, Debt sustainability analysis, Double taxation

Keywords: Debt distress, Debt measure, Long-term debt, Loss function, WP

Publication Details

  • Pages:

    39

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2014/048

  • Stock No:

    WPIEA2014048

  • ISBN:

    9781475579772

  • ISSN:

    1018-5941

You May Also Be Interested In...

Ukraine: Sixth Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of a Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Ukraine

December 20, 2024

Islamic Republic of Mauritania: Staff Report for the 2024 Article IV Consultation, Third Review Under the Arrangements Under the Extended Credit Facility and Extended Fund Facility, Request for Modification of Quantitative Performance Criteria, and Second Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania

December 20, 2024

Benin: Fifth Review under the Extended Fund Facility and the Extended Credit Facility Arrangements, and the Second Review under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for Benin

December 19, 2024

The Union of the Comoros: Third Review under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria and Waivers of Nonobservance of Performance Criteria -Press Release; Staff Report; and Statement by the Executive Director for The Union of the Comoros

December 19, 2024