The seven mechanisms for achieving sovereign debt sustainability

Sovereign debt crises are harmful reoccurring economic phenomena and the subject of how best to achieve sovereign debt sustainability is therefore of paramount importance. For decades economists have struggled to find a robust and consistent means of assessing sovereign debt sustainability. This paper argues that our understanding of sovereign debt sustainability can be enhanced by viewing this subject through the dual lenses of political economy and economic history. These two perspectives help identify seven distinct mechanisms for achieving sovereign debt sustainability. It is important to understand each of these methods as countries can, and often do, pursue multiple strategies in their efforts to achieve debt sustainability. Sovereign debt sustainability is often as much a political as an economic challenge with competing internal and external dimensions.