The International Monetary Fund study provides a unified framework that incorporates tax distortions and asset-pricing factors, such as risk-free rates, convenience yields, and jump-risk premia, to estimate the maximum sustainable debt across countries and over time.
The findings reveal that sustainable debt levels are shaped by a complex interaction of macro-fiscal fundamentals, asset pricing, and sovereign risk. While some advanced economies may have higher sustainable debt thresholds, they remain vulnerable to changes in global risk-free rates.
Emerging markets and low-income countries face tighter constraints, with several already exceeding their estimated sustainable levels, signalling heightened risks of debt distress.
The framework also allows for clear identification of country-specific drivers and their relative impact. Sensitivity analyses show that estimates of sustainable debt are highly responsive to key parameters, particularly when interest-growth differentials are narrow.
The study emphasises the need for dynamic, country-specific assessments to guide prudent fiscal policy and debt management strategies in an increasingly uncertain global environment.
–IMF/ChannelAfrica–
