A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty

27 Pages Posted: 18 Feb 2008

See all articles by Dale F. Gray

Dale F. Gray

International Monetary Fund (IMF); MF Risk

Cheng Hoon Lim

International Monetary Fund (IMF)

Elena Loukoianova

International Monetary Fund (IMF)

Samuel Malone

affiliation not provided to SSRN

Date Written: February 2008

Abstract

This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Keywords: Risk management, Public sector, Public debt, Reserve management policy

Suggested Citation

Gray, Dale F. and Lim, Cheng Hoon and Loukoianova, Elena and Malone, Samuel, A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty (February 2008). IMF Working Paper No. 08/40, Available at SSRN: https://ssrn.com/abstract=1094222

Dale F. Gray (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

MF Risk

5921 Searl Terrace
Bethesda, MD 20816

Cheng Hoon Lim

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Elena Loukoianova

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Samuel Malone

affiliation not provided to SSRN

No Address Available

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