Debt Sustainability Model



Debt Sustainability Model

Sustainable debt = ( GDP, Export , Debt =External +Domestic,

Interest Rate (Domestic or international ), Exchange Rate,… )

GDP, Export are robust.

Denote : D=debt ; X=GDP, Export; r= interest rate ; g= growth rate =[pic];

[pic] = debt service ratio, [pic]=debt ratio

Define : Sustainable Debt (SD)[pic]which must me constant or declining

[pic] ([pic])

In order the DS to be constant or declining the difference between Growth rate and Debt Growth must me 0,

[pic] [pic], putting [pic] and g=[pic] yields

[pic] , [pic][pic] ( 1 )

[pic][pic]=[pic] where [pic] debt ratio yields

[pic] [pic] [pic] (2)

[pic]

[pic]

[pic] (3)

The following table describes [pic]`s dependence from CPIA, the higher the CPIA the higher the [pic], [pic]usually is not a constant, but for the simplification of DSA we take it into the model as given. Appendices 1 can help us to verify above mentioned .

Table A.1. Policy-Dependent Debt and Debt-Service Thresholds Applied to Low-Income Countries

CPIA Country Policy and Institutional Assessment

NPV/GDP NPV/EXP DS

Strong (CPIA >=3.60) 60 300 35

Armenia 31.7 133.3 13.2

India 16.1 119.9 19.0

Medium (2.90 ................
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