CEEMEA Sovereign Credit Strategy: LIC-DSF 4.0: A First Look

Research evidence excerpt

CEEMEA Sovereign Credit Strategy: LIC-DSF 4.0: A First Look

rts - Severity and duration of breaches

- Debt by creditor, instrument, currency, and - External debt service-to-revenue - Domestic debt risks and financing

maturity (PV of external debt-to-exports removed) conditions

- Other relevant data - Institutional and governance factors

DCC-specific thresholds: - External risk profile

Weak | Medium | Strong - Data quality and confidence

Debt Carrying Capacity Standardized stress tests Risk rating: Weak | Medium | Strong - Other country-specific considerations -CPIA - Growth shock

- Economic fundamentals, e.g., GDP growth - Exports shock

and output volatility - Terms of trade shock

- External buffers, including reserves and - Non-interest current account shock

remittances - FDI shock Overall public debt stress Final risk ratings

- Exposure to global conditions and financial - Combined macro-fiscal shock Indicators: Final risk ratings for:

conditions. - Contingent liability shock - FV of overall public debt-to-GDP - External public debt stress

Classified into: + Tailored tests - Gross financing needs-to-GDP - Overall public debt stress

Weak | Medium | Strong - Interest-to-revenue excluding grants - Public debt sustainability

DCC-specific thresholds:

Auxiliary modules Weak | Medium | Strong

Assumptions

Market financing module

- Baseline macro framework -- Domestic debt risk module, including Risk rating: Weak | Medium | Strong

- Fiscal policies

solvency and liquidity diagnostics and

- Financing assumptions

realism checks

- Other key assumptions Unsustainable debt - Climate module, optional

- Development module, optional Model-based predicted probability of

unsustainable debt

Mechanical signal:

Sustainable | Unsustainable

Source: IMF/World Bank, Morgan Stanley Research