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Lifting the hood of the LIC-DSF to revamp its accuracy and transparency

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  • Graf Von Luckner, Clemens

Abstract

This note by Clemens Graf von Luckner aims to achieve two goals: 1. "lifting the hood" of the LIC-DSF to analyze its mechanics for predicting the risk of debt distress; and 2. Identifying the shortcomings of the current model. The first section of the paper explores the complex steps involved in transforming projections (especially of debt indicators such as external public debt in present value to GDP; or debt services to revenues) into a risk measure: how likely is this country to default? The second section reveals that a number of choices made to accomplish this task lack transparency and efficiency. Graf von Luckner proposes a more straightforward procedure that reduces the risks of manipulation and the sharp discontinuities that have plagued recent debt restructurings.

Suggested Citation

  • Graf Von Luckner, Clemens, 2024. "Lifting the hood of the LIC-DSF to revamp its accuracy and transparency," FDL Policy Notes 2407, CEPREMAP.
    • Handle: RePEc:cpm:notfdl:2407
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    File URL: https://findevlab.org/wp-content/uploads/2024/10/FDL-_Policy-Note-18_The-Debt-Sustainability-Framework-for-Low-Income-Countries_Oct24.pdf
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    References listed on IDEAS

    as
    1. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    2. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
    3. Lang, Valentin F. & Presbitero, Andrea F., 2018. "Room for discretion? Biased decision-making in international financial institutions," Journal of Development Economics, Elsevier, vol. 130(C), pages 1-16.
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