scholarly journals The IMF Debt Sustainability Analysis: Issues and Problems

2015 ◽  
Vol 6 (2) ◽  
Author(s):  
Martin Guzman ◽  
Daniel Heymann
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Sovereign Debt ◽  
Analysis Framework ◽  
Debt Sustainability ◽  
Yield Spreads ◽  
Sustainability Analysis ◽  
Market Interest Rate ◽  
Evaluation Exercise ◽  
The Imf

AbstractThis paper reviews the IMF DSA (Debt Sustainability Analysis) framework. We first examine the concept of debt sustainability, and argue that the evaluation exercise necessarily entails putting into question market expectations embodied in yield spreads. When the views of the analyst on the capacity of debt repayment differ from the ones reflected in market interest rate premiums, the use of market interest rates for assessing debt sustainability leads to an inconsistency that will in turn bias the assessment. We then show that IMF projections for assessing debt sustainability have been repeatedly biased, which may have contributed to distort the timing of sovereign debt restructurings and the consequent processes of renegotiation. We conclude with a discussion on how the existing DSA framework could be improved.

Coordination of Monetary and Exchange Rate Policy in China: Market Interest Rate Approach

2015 ◽  
Vol 19 (3) ◽  
pp. 456-464 ◽  
Author(s):  
Bing Xu ◽  
◽  
Qiuqin He ◽  
Xiaowen Hu ◽  
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Indirect Effect ◽  
Exchange Rate Policy ◽  
Output Gap ◽  
Real Interest Rates ◽  
Market Interest Rate ◽  
Rate Policy ◽  
Inflation Inertia

We propose a unique time-varying identification approach to the market interest rate based on Taylor Rule for coordinating the monetary and exchange rate policies. The significant differences exist between real and market interest rates — 2001 and 2009 are high real interest rates, and 2004-2005 and 2010-2012 low real interest rates — that identify monetary and exchange rate policy conflicts in China. These conflicts derive from the indirect effect of monetary factor through interest rate inertia and expected output gap in 2001; the indirect effect of exchange rate factor through interest rates and inflation inertia in 2004-2005; the direct effects of monetary and the exchange rate factors and the indirect effects through interest rate and inflation inertia, and the expected inflation and output gap since 2009. Our empirical results provide decision support for the monetary and exchange rate policy for reforming Chinese market interest rates.

Honor Thy Creditors Beforan Thy Shareholders: Are the Profits of Chinese State-Owned Enterprises Real?

2010 ◽  
Vol 9 (3) ◽  
pp. 50-71 ◽  
Author(s):  
Giovanni Ferri ◽  
Li-Gang Liu
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Dividend Policy ◽  
The State ◽  
Chinese Government ◽  
Firm Characteristics ◽  
The Past ◽  
Dividend Payments ◽  
Market Interest Rate ◽  
Chinese State

Chinese state-owned enterprises (SOEs) have become quite profitable recently. As the largest shareholder, the state has not asked SOEs to pay dividends in the past. Therefore, some have suggested that the state should ask SOEs to pay dividends. Indeed, the Chinese government has adopted this policy advice and started to demand back dividend payments starting from 2008. Although we do not question the soundness of the dividend policy, the point we raise is whether those profits are real if all costs owed by SOEs are properly accounted for. Among others, we are interested in investigating whether the profits of SOEs are still as large as they claim if they were to pay a market interest rate. Using a representative sample of corporate China, we find that the costs of financing for SOEs are significantly lower than for other companies after controlling for some fundamental factors for profitability and individual firm characteristics. In addition, our estimates show that if SOEs were to pay a market interest rate, their existing profits would be entirely wiped out. Our findings suggest that SOEs are still benefiting from credit subsidies, and they are not yet subject to the market interest rates. In an environment where credit rights are not fully respected, dividend policy, though important, should come second and not first.

scholarly journals Sovereign Debt Restructuring: A Modest Proposal

2021 ◽  
Vol 4 (1) ◽  
pp. p8
Author(s):  
Colin Ellis
Keyword(s):  
Sovereign Debt ◽  
Correlated Errors ◽  
Debt Restructuring ◽  
Debt Sustainability ◽  
Sustainability Analysis ◽  
Modest Proposal ◽  
Debt Dynamics ◽  
Sovereign Defaults

Many sovereigns, including weaker credits, have taken on substantial debt during the COVID-19 pandemic. This raises the prospect of future defaults and sovereign restructurings, which will be informed by debt-sustainability analysis. But when analyzing notable recent sovereign defaults, we find a pattern of serially correlated errors: the analysis at the time of the restructuring is too optimistic about future sovereign debt dynamics. In light of this, I propose that future sustainability analysis should be based on more pessimistic expectations. In turn, this implies that sovereign creditors should face larger losses in future restructurings.

Greece 2012 and Cyprus 2013

2017 ◽  
Author(s):  
C. Randall Henning
Keyword(s):  
Private Sector ◽  
Euro Area ◽  
Banking System ◽  
Debt Relief ◽  
Debt Restructuring ◽  
Debt Sustainability ◽  
Sustainability Analysis ◽  
Regime Complex ◽  
Private Sector Involvement ◽  
The Imf

Greece posed the greatest challenge among the program countries, while Cyprus, linked to Greece through the banking system and debt restructuring, was the smallest of the country programs. The second Greek program was accompanied by substantial debt relief, but the process of granting it exposed sharp disagreements within the regime complex for crisis finance. The IMF and some euro-area member states advocated private-sector involvement, but split on the sustainability of the remaining official claims on Greece, with the Fund using its debt sustainability analysis as leverage. The case of Cyprus demonstrates that the IMF can be influential even if it contributes a relatively small share of the financing, when it is backed by key creditor states. In both cases, despite substantive conflict, key European creditors adhered faithfully to including the IMF and mediated among the institutions when they became deadlocked.

ECB liquidity may bring Greece a modest relief

2016 ◽  
Keyword(s):  
Commercial Banks ◽  
Private Consumption ◽  
Gdp Growth ◽  
Debt Restructuring ◽  
Debt Sustainability ◽  
Content Type ◽  
Pension Reforms ◽  
The Third ◽  
Sustainability Analysis ◽  
The Imf

Significance The tranche will meet debt repayments falling due until end-2016. The prospect has been held out of debt restructuring if programme commitments are fulfilled. The IMF, which has so far refused participation in the third programme, has tentatively agreed to consider it, subject to another debt sustainability analysis (DSA) before year-end. Impacts Business will be helped by the settlement of a large part of outstanding government arrears. The injection of liquidity will help offset the dampening effect on GDP growth caused by required tax and pension reforms. Deposits with commercial banks will remain frozen for at least a year, a huge brake on private consumption and investment.

scholarly journals The impact of the excess reserves of the banking sector on interest rates and money supply in Poland

2021 ◽  
Author(s):  
Mariusz Kapuściński ◽  
Ilona Pietryka
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Money Supply ◽  
Banking Sector ◽  
Money Market ◽  
Vector Autoregressive ◽  
Excess Reserves ◽  
Market Interest Rate ◽  
The Impact

In this monograph we aim to analyse the effects of leaving excess reserves in the banking sector by the central bank on the level and the variability of interest rates, as well as on money supply. To this end, we use mainly data for Poland, but in some cases, for robustness, also for a panel of Poland, the euro area, the Czech Republic and Hungary, as there had only been a limited variability in some policy variables in our sample for Poland. We estimate the parameters of GARCH, (P)VAR (vector autoregressive or panel vector autoregressive) and (panel) linear regression models. We find that excess reserves affect the level and the variability of an overnight money market interest rate. However, the variability of the overnight money market interest rate, shaped to a large extent by excess reserves, does not affect the level of longer-term interest rates, and we find little evidence of its impact on their variability. Neither do excess reserves translate into higher money supply. Our results imply that the current monetary policy operational framework in Poland is adequate to ensure the transmission of the central bank policy rate to money market interest rates. Furthermore, it appears unlikely that raising the amount of excess reserves left, as proposed by some policymakers, would affect money supply. Instead, it would lower the money multiplier and the overnight money market interest rate, as well as increase its volatility.

scholarly journals DO INDONESIAN MANAGERS TIME THEIR CORPORATE BONDS?

2013 ◽  
Vol 5 (2) ◽  
pp. 156-196
Author(s):  
Christine Andreani ◽  
Dewi Tamara
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Credit Rating ◽  
Bootstrap Method ◽  
Market Timing ◽  
Corporate Bonds ◽  
Listed Companies ◽  
Government Bond ◽  
Market Interest Rate ◽  
Debt Market

Corporate bonds are becoming popular in Indonesian capital market due to the ongoing decline in interest rates and the increase in credit rating. Debt Market Timing Theory argues that managers try to time their bonds issuance according to the market interest rate, relatively. This paper aims to analyze the debt issuance timing profile of Indonesian public listed companies. The samples are 24 bonds issuances, which have maturity period between 3 to 7, and companies already issued more than 1 bond issued within year 2009 and 2011. The manager’s behavior to time government bond rates is observed in the 5 working days window, whether the corporate bonds being issued at the lowest market interest rate (i.e., government bond rates) on the window. Bootstrap method is utilized to construct counterfactual data. The research finds that 7 out of 24 bonds issuance were issued at the lowest government bond yield within the window. Indonesian public listed companies had no ability to time their bond issuances during period 2009 until 2011. This paper reveals that the frequency of bond issuances made by each Indonesian company does not necessarily determine their capability to time government bond rates. However, bootstrap is a useful and more robust tool to help assessing the debt market timing ability when the samples taken are small in numbers.

Debt Sustainability

2019 ◽  
pp. 151-191
Author(s):  
Xavier Debrun ◽  
Jonathan D. Ostry ◽  
Tim Willems ◽  
Charles Wyplosz
Keyword(s):  
Willingness To Pay ◽  
Sovereign Debt ◽  
Debt Sustainability ◽  
Ability To Pay ◽  
The Imf

Why can Japan sustain debts above 200 percent of GDP, while Ukraine defaulted on its debt when it was 30 percent of GDP? This chapter investigates what causes a country to default and hence how to assess the sustainability of sovereign debt. It begins by looking at why a sovereign my renege on its debt operations—because it makes a strategic choice (willingness-to-pay models), or because it is forced to (ability-to-pay models). The bulk of the chapter will look at the different techniques for assessing debt sustainability, highlighting the work of the IMF as well as other models.

Commercial Banks

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Great Recession ◽  
Commercial Banks ◽  
Central Banks ◽  
The Great Recession ◽  
Term Structures ◽  
Market Interest Rate ◽  
Money Creation

Chapter 7 introduces commercial banks as creators of money and integrates them into the general equilibrium framework. The motivation to deviate from the standard approach that neglects commercial banks and entrusts all money creation to a central bank is twofold. First, apart from currency, central banks do not provide money directly but rather supply reserves that enable banks to create deposits. After the Great Recession, this transmission process staggered: increases in reserves outpaced increases in deposits. Any analysis of the monetary expansions starting in 2008 would remain incomplete and unsatisfactory unless it took account of this fact. Second, central banks normally control an overnight interbank interest rate that differs from the market interest rate on bonds. Considering an interbank market and its relationship with the bond market makes it possible to derive a term structure of interest rates. This is important because inverse term structures are good predictors for recessions.

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