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This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Exports and Imports --- Public Finance --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- International economics --- Public finance & taxation --- Local currency debt --- Foreign currency debt --- Debt sustainability --- Debt sustainability analysis --- Public debt --- Debts, External --- Debts, Public --- United States

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This paper estimates the determinants of external debt distress in low-income countries (LICs), disentangling the roles of institutions, shocks, and policies. The most prominent factors in raising the risk of debt distress are the weak protection of private property rights, adverse shocks to real non-oil commodity prices, and a high debt burden. Results also suggest that weak economic institutions tend to raise the probability of debt distress through persistently weak economic policies and high vulnerability to external shocks. The model enables a more granular analysis of debt sustainability in LICs and has a higher predictive power compared to the earlier scant literature.

Exports and Imports --- International Lending and Debt Problems --- International economics --- Debt sustainability --- External debt --- Debt burden --- Debt default --- Public and publicly-guaranteed external debt --- Debts, External --- United States

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While debt-financed productive public investment raises a country's debt ratios in the short run, it can also generate higher growth, revenues, and exports, leading over time to lower debt ratios. This paper develops a framework to assess whether countries meet the conditions for realizing the net benefits over the costs of public investment debt financing. While it is possible to achieve debt sustainability with an appropriate mix of concessional and non-concessional financing, this is a necessary but not sufficient condition. It is also important to ensure the operational viability of public investment projects by having in place adequate project management: (i) project screening and appraisal, (ii) a clear connection between capital and recurrent expenditures once the projects are launched, and (iii) safeguards for appropriate project implementation and facilities operations. To illustrate the strength of these results, the paper carries out three measurement exercises: (a) a simulation of the degree to which the ratio of optimal public investment responds to changes in key parameters related to project management in a general equilibrium model; (b) application of the public investment management (PIMa) index to benchmark a country's public investment management capacity; and (c) presentation of the results of the Investment, Savings, and Macroeconomic Vulnerabilities tool aimed at tracking country choices in public finance and the impact of public projects on private investments.

Access to Finance --- Debt Markets --- Debt Sustainability --- Economic Theory & Research --- Finance and Financial Sector Development --- Investment & Investment Climate --- Macroeconomics and Economic Growth --- Public Investment Management --- Public Sector Development

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Natural disasters are an important source of vulnerability in the Caribbean region. Despite being one of the more disaster-prone areas of the world, it has one of the lowest levels of insurance coverage. This paper examines the vulnerability of Belize's public finance to the occurrence of hurricanes and the potential impact of insurance instruments in reducing that vulnerability. The paper finds that catastrophic risk insurance significantly improves Belize's debt sustainability. In addition, the methodology employed makes it possible to estimate the appropriate level of insurance, which for the case of Belize is a maximum coverage of US$120 million per year.

Risk (Insurance) --- Insurance --- Risk --- Exports and Imports --- Finance: General --- Natural Disasters --- Insurance Companies --- Actuarial Studies --- Climate --- Natural Disasters and Their Management --- Global Warming --- General Financial Markets: Government Policy and Regulation --- International Lending and Debt Problems --- Insurance & actuarial studies --- Natural disasters --- Finance --- International economics --- Moral hazard --- Debt sustainability --- Debt sustainability analysis --- Financial risk management --- Debts, External --- Belize

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Low-income countries continue to face significant challenges in meeting their vast development needs while maintaining a sustainable debt position, even after many of these countries have benefited from substantial debt relief. These challenges are further exacerbated by changes in the financial landscape, including the emergence of new creditors and investors, the use of more complex financing vehicles, and the development of domestic markets. The joint World Bank/IMF debt sustainability framework is well placed to help address these challenges and reduce the risks of renewed episodes of debt distress. This paper explains the analytical underpinnings of the framework and the means to ensure its full effectiveness.

Developing countries --- Economic policy. --- Exports and Imports --- Financial Risk Management --- Public Finance --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- Trade Policy --- International Trade Organizations --- International economics --- Public finance & taxation --- Finance --- Debt sustainability analysis --- Debt sustainability --- External debt --- Public debt --- Debt service --- Debts, External --- Debts, Public --- Export credit --- United States