In an era of high debts and more shocks, should debt sustainability analyses by the IMF and World Bank change to adapt?

A new study by Sherillyn Raga proposes four ways it can. One is by correcting the IMF’s over-optimistic growth and public debt forecasts for low-income countries, which underestimate the impact of overlapping shocks. The second is by better incorporating the impact of fiscal policy on baseline projections. The third is to produce a stress-test scenario for large shocks to trigger early action and prevent debt distress. Finally, when judgment rather than objective signals guide policy advice to countries, the reasoning needs to be clearly documented.

Report by Sherillyn Raga, research fellow, Overseas Development Institute