The Impact of IMF Debt Sustainability Assessments on Sovereign Debt Restructuring Outcomes for Private Sector Creditors

This study examines the International Monetary Fund's (IMF) Debt Sustainability Assessment (DSA) and its influence on sovereign bond debt negotiations, particularly focusing on the impact of the DSA's implicit GDP growth forecasts on private sector creditors during sovereign debt restructurings. This study explores how systematic forecast errors in the DSA may have distorted negotiation outcomes, leading to suboptimal debt rescheduling and forgiveness outcomes with negative economic consequences for private sector creditors. The IMF, as the "lender of last resort," plays a dual role as both a senior creditor and arbitrator in these negotiations, which may create conflicts of interest. This conflict could lead to perceived biases in the DSA's forecasts, influencing both the sovereign debtor and private creditors' strategies. This study highlights the potential risks of such biases, including increased divisiveness in negotiations and the disincentivization of future private sector lending to high-risk sovereign borrowers.