Mr. Enrico Berkes

Ms. Catherine A. Pattillo

Mr. Andrew Berg

Andrea Presbitero

Mr. Yorbol Yakhshilikov

The World Bank and the IMF have adopted a debt sustainability framework (DSF) to evaluate the risk of debt distress in Low Income Countries (LICs). At the core of the DSF are empirically-based thresholds for each of five different measures of the debt burden (the “debt threshold approach” DTA). The DSF contains a rule for aggregating the information contained in these five different variables which we label the “worst-case aggregator” (WCA) in view of the fact that the DSF considers a breach of any one of the thresholds sufficient to indicate a high risk of debt distress. However, neither the DTA nor the WCA has heretofore been subject to empirical testing. We find that: (1) the DTA loses information relative to a simple proposed alternative; (2) the WCA is too conservative (predicting crises too often) in terms of the loss function used in the DSF; and (3) the WCA is less accurate than some simple proposed alternative aggregators as a predictor of debt distress.

Assessing Bias and Accuracy in the World Bank-IMF's Debt Sustainability Framework for Low-Income Countries

Ms. Kalpana Kochhar

Ms. Yan Sun

Mrs. Nujin Suphaphiphat

Andrew Swiston

Mr. Robert Tchaidze

Mr. Benedict J. Clements

Ms. Stefania Fabrizio

Valentina Flamini

Ms. Laure Redifer

Mr. Harald Finger

This paper examines water challenges, a growing global concern with adverse economic and social consequences, and discusses economic policy instruments. Water subsidies provided through public utilities are estimated at about $456 billion or 0.6 percent of global GDP in 2012. The paper suggests that getting economic incentives right, notably by reforming water pricing, can go a long way towards encouraging more efficient water use and supporting needed investment, while enabling policies that protect the poor. It also discusses pricing reform options and emphasizes an integrated and holistic approach to manage water, going beyond the water sector itself. The IMF can play a helpful role in ensuring that macroeconomic policies are conducive to sound water management.

Issues in Managing Water Challenges and Policy Instruments

Is the Glass Half Empty Or Half Full?

Ms. Catherine A. Pattillo

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