The art of assessing public debt sustainability: Relevance, simplicity, transparency

a column by Xavier Debrun, Jonathan D. Ostry, Tim Willems and Charles Wyplosz for VOX: CEPR’s Policy Portal

Knowing whether public debt is sustainable is as critical for economists analysing fiscal policy as for practitioners tasked with charting desirable policy paths. However, because sustainability is intimately related to the government’s ability to honour all its current and future obligations, it is purely forward-looking and assessing it amounts to making a prediction about an unknowable future.

This column fleshes out three principles guiding the design and implementation of sound debt sustainability frameworks:

• relevance,
• simplicity and
• transparency.

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The preferred creditor puzzle in sovereign debt markets

a column by Tito Cordella and Andrew Powell for VOX: CEPR’s Policy Portal

Countries almost always repay loans from the IMF and the World Bank before others, even though this preferred treatment rarely appears in legal contracts.

This column presents a framework to investigate this puzzle. It argues that the ability to restrict lending allows international financial institutions to lend at the risk-free rate and creates incentives for repayment. IMF and World Bank loans are thus complementary to commercial lending.

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Hazel’s comment:
I think I understand the issues involved a lot better now than I did before reading this.

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