Risk signals from the template, referred to as mechanical risk signals, are combined with judgement to determine the risk ratings of external and overall public debt distress. DSAs play a critical role in guiding borrowing and lending decisions. Debt Sustainability Framework Interactive Guide Use our interactive guide to learn more about the Debt Sustainability Framework for Low-Income Countries and how it can be used to assess debt vulnerabilities and guide borrowing and lending decisions.
VIDEO click. Burkina Faso. Cabo Verde. Central African Republic. Vincent and the Grenadines. Democratic Republic of the Congo. Republic of Congo.
The Gambia. Welcome to Station 1! External and Public DSA. The objective of the LIC DSF is to support efforts by low-income countries to achieve their development goals, while minimizing their risk of experiencing debt distress.
Debt crises are costly to debtors, creditors, and the international monetary and financial system. In recent years, debt vulnerabilities in LICs have risen.
Since , many countries have witnessed an increased risk of debt distress and over two-fifths of these countries are facing significant debt challenges.
A full debt sustainability analysis DSA should generally be produced at least once every calendar year. A low-income country may eventually graduate from the concessional debt sustainability analysis and migrate to the Debt Sustainability Analysis for Market-Access Countries MAC DSA when its per capita income level exceeds certain threshold for a specified period or when it has the capacity to access international markets on a durable and substantial basis.
Where the graduation criteria apply, the projected share of concessional debt in the total external debt stock should be carefully assessed based on the projected evolution of public financing. This includes assessing the recent and projected share of official grants and concessional loans in budget financing; the share of domestic debt financing; and the durability of the access to the international capital markets. Importantly, there should be strong emphasis on the realism of financing projections.
These inputs are in turn based on a comprehensive macroeconomic framework consisting of historical data and interrelated projections of key macroeconomic variables, often referred to as the baseline scenario. Also important is a financing strategy consistent with the macroeconomic framework discussed in station 2. The template automatically applies a series of shocks, or stress tests, to gauge the sensitivity of the debt burden indicators to changes in the baseline scenario. The present value of debt is equal to the sum of all future debt service payments principal and interest , discounted to the present using a given discount rate set at 5 percent for the LIC DSF.
If the discount rate and the contractual interest rate of a loan are the same, then the PV is equal to or close to the face value. If, however, the contractual interest rate of the loan is less than the discount rate, then the PV of the debt is less than the face value, implying that the loan has some degree of concessionality. The grace period, maturity, and frequency of payments associated with the loan also affect its concessionality. For loans with a grant element equal or below zero, the PV will be set equal to the face value of the loan.
It also compares countries' debt indicators under the baseline and stress scenarios to the relevant thresholds. Risk signals from the template, referred to as mechanical risk signals, are combined with judgement to determine the risk ratings of external and overall public debt distress. For each DSA, the framework generates a mechanical risk signal by comparing the relevant debt indicators with the thresholds.
The final risk rating is determined by the combination of the mechanical signals and judgement.
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