The IMF will deploy a new method to judge debt sustainability

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Band David Lawder

WASHINGTON, February 3 (Reuters)The International Monetary Fund announced on Wednesday that it is launching a new method for assessing the debt sustainability of countries with access to financial markets in order to more accurately predict the risks of financial crises and improve transparency.

The updated debt rating methodology, the first since 2013 following a European sovereign debt crisis, is expected to be operational by the fourth quarter of 2021 or the first quarter of 2022, officials said. IMF officials.

Assessing a country’s debt sustainability has always been “more art than science,” and the new system aims to inject a little more science into the process, said Jeromin Zettelmeyer, deputy director of the IMF Strategy, Policy, and Review Department, in an online conference.

He said the IMF had revised its modeling of debt-related factors to provide “a more accurate framework that allows us to warn or predict crises and unsustainable and sustainable debt.”

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Ratings are important because they help determine how much a country can borrow while meeting strict IMF requirements that its debt does not fall into an unsustainable position. For example, the IMF has been reluctant to grant a bailout program to Lebanon until the country’s existing debts are placed on a sustainable path, among other things. The factors.

The current assessment method provides multiple indicators of potential danger areas for countries, but leaves IMF staff wide latitude in judging them, Zettelmeyer said. New tools and models will combine them into a statistically sound “mechanical sustainability assessment” that will be more transparent, he added.

The new methodology also aims to better assess a country’s ability to meet its gross funding needs, through liquid resources, potential new sources of revenue and the strength of its domestic funding markets, Manrique said. Saenz, Deputy Division Manager within the Strategy, Policy and Review Department.

For countries dependent on natural resources, it will aim to better assess climate change and future changes in demand for fossil fuels. It also aims to better understand the debt sustainability of public enterprises, both in the financial and non-financial sectors.

The IMF said the new debt assessment framework was developed after extensive consultations with external stakeholders, market participants, rating agencies, academics, the European Union and the European Central Bank.

(Reporting by David Lawder in Washington under the direction of Matthew Lewis)

((David.Lawder@tr.com; +1 202 354 5854; Reuters Messaging: david.lawder.thomsonreuters.com@reuters.net))

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