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Assessing public debt sustainability under COVID-19 uncertainty: Evidence from Côte d'Ivoire.

Sassire Napo
Published in: African development review = Revue africaine de developpement (2022)
This article investigates public debt sustainability, in the context of a novel exogenous shock, by proposing a realistic forecasting procedure. The procedure implies the combination of a Bayesian VAR model and a nonlinear fiscal reaction model to derive a large number of simulated public debt paths and construct a probabilistic debt sustainability indicator. Annual data covering the period from 1970 to 2019 are used in the African context, with Côte d'Ivoire as a case study. Forecasts suggest low probabilities of non-increasing trend and well-contained upside risks (16%-27%) in Côte d'Ivoire for the forecasting period 2021-2024, regardless of the scenario underlying the evolution of COVID-19 and suggesting that the country remains vulnerable to debt distress risks. Government should promote a sound and reliable debt management system to mitigate such risks. Results also highlight the importance of domestic resources mobilization in reducing the country's fiscal vulnerability and building a sustainable post-COVID recovery.
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