Debt Sustainability Assessments and their Role in the Global Financial Architecture

A new study by Martín Guzmán and Joseph E. Stiglitz looks at the practice of the IMF’s debt sustainability analysis. They discuss how incentives and competing interests of stakeholders shape understandings of the debt sustainability constraints, endogenous effects of macroeconomics and fiscal policies, and beliefs on distribution of shocks. They identify areas for improvements in DSAs opportunity and publication timelines, dealing with the IMF’s role as a creditor, the treatment of foreign vs domestic currency debt, choosing correct discount factors, and the causes of over-optimism in baseline growth scenarios.