External Factors in Debt Sustainability Analysis: An Application to Latin America?

This paper develops a framework for debt sustainability analysis that integrates econometric estimates of the effect of global factors on a set of key domestic variables that determines public and external debt dynamics. The methodology is applied to assess debt sustainability in Latin America – a region highly sensitive to external conditions. Results suggest that, while some countries in the region are well placed to withstand moderate or even large foreign shocks, many would benefi t from strengthening their fi scal positions to be able to deploy countercyclical policies under adverse scenarios, especially tail events. External