IMF Launches New Tool to Assess Public Debt in Market Access Countries

New approach takes holistic view of debt sustainability

Tool evaluates realism of economic projections, potential vulnerabilities

Visual summaries highlight risks that are comparable across countries

The tool improves upon the IMF’s previous method of evaluating how much public debt emerging market and advanced economies can safely carry. The new approach takes a more holistic view, assessing the level and trajectory of debt, government financing needs, and vulnerabilities in the debt structure.

The IMF has been working to overhaul its framework for public debt sustainability analysis in market access countries (MAC DSA) over the past two years as the issue of public debt has become increasingly prominent. The global financial crisis and more recent developments have exposed not only significant debt vulnerabilities—particularly in advanced economies, where such concerns had been minimal—but also gaps in the analytical capacity to assess and foresee such risks. The new DSA for market access countries aims to close those gaps by scrutinizing debt sustainability from several different perspectives.

More comprehensive risk assessment

The revamped DSA pushes the analytical frontier by introducing new tools for comprehensive risk assessment. In addition to evaluating debt trajectories, as was previously done, the new framework also assesses the solvency and liquidity risks stemming from high levels of public debt, gross financing requirements, and a country’s debt profile. For example, it compares the public debt, financing needs, and liquidity indicators to early warning benchmarks intended to flag potential vulnerabilities at an early stage.

Clarity and transparency are key features of the new DSA framework. DSA results are displayed in standardized charts and tables, which facilitate cross-country comparison. A heat map objectively summarizes the analytical results, with red, yellow, and green cells indicating high, moderate, and low risks respectively. Standard output chart packages are available at this link. The final assessment of debt vulnerabilities is expected to reflect the country-specific context—therefore, where relevant, DSA results provide country-specific details and discuss factors that may amplify or mitigate certain risks (see box).

In IMF country reports, DSA outputs are summarized in a heat map and accompanied by a write-up. Heat map colors are determined by comparing debt levels, gross financing needs, and debt profile...