Public Debt Sustainability

37 Pages Posted: 7 Oct 2019

See all articles by Xavier Debrun

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Jonathan D. Ostry

International Monetary Fund (IMF)

Tim Willems

International Monetary Fund (IMF)

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR)

Date Written: September 2019

Abstract

Why can Japan sustain debts above 200 percent of GDP, while Ukraine defaulted on its debt when it was 30 percent of GDP? Answering that question is challenging. First, debt sustainability does not easily translate into operational concepts and indicators. Second, servicing the debt is a strategic decision, the result of a cost-benefit analysis. Thus markets can always, for good or bad reasons, question governments' commitment to face their financial obligations. Third, uncertainty around public debt developments is large and difficult to model. Fourth, not all debts are born equal, as the currency composition, maturity structure, type of creditor and ownership of the debt affect exposure to rollover and liquidity risks. The paper surveys the knowns and unknowns of debt sustainability, including the tools helping us to understand vulnerabilities and to inform our judgment. Instead of embarking on the impossible mission to build a holistic, consistent and broadly-accepted debt-sustainability framework for practitioners, we take the more modest approach to review some of the key economic principles and statistical methods that form today's leading practice in debt sustainability assessments.

Keywords: debt sustainability analysis, default, Willingness to pay

JEL Classification: H62, H63

Suggested Citation

Debrun, Xavier and Ostry, Jonathan D. and Willems, Tim and Wyplosz, Charles, Public Debt Sustainability (September 2019). CEPR Discussion Paper No. DP14010, Available at SSRN: https://ssrn.com/abstract=3464539

Xavier Debrun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8321 (Phone)
202-623-6343 (Fax)

Jonathan D. Ostry

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Tim Willems

International Monetary Fund (IMF) ( email )

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

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5946 (Phone)
+41 22 733 3049 (Fax)

HOME PAGE: http://heiwww.unige.ch/~wyplosz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
1,482
PlumX Metrics