Cover; Contents; 1. Introduction; 2. Related Literature; 3. The Debt Sustainability Framework; 3.1 Goodness-of-fit; 3.2 Limitations of the DSF; 4. The DSF Method of Aggregation; 4.1 Bias; 4.2 Accuracy; 5. The Probability Threshold Approach; 6. How to Aggregate the Debt Indicators; 6.1 Equal Weights; 6.2 Multivariate Probit; 6.3 More Parsimonious Data-Based Models; 6.3.1 Step-wise models; 6.3.2 Equal-Weight-Prior; 6.4 Summary on model selection; 7. Revisiting the loss Function; 8. Discussion and Conclusions
Summary
The World Bank and the IMF have adopted a debt sustainability framework (DSF) to evaluate the risk of debt distress in Low Income Countries (LICs). At the core of the DSF are empirically-based thresholds for each of five different measures of the debt burden (the?debt threshold approach? DTA). The DSF contains a rule for aggregating the information contained in these five different variables which we label the?worst-case aggregator? (WCA) in view of the fact that the DSF considers a breach of any one of the thresholds sufficient to indicate a high risk of debt distress. However, neither the
