Assessing Fiscal Sustainability in Theory and Practice

The main purpose of this paper is to provide an overview of approaches to assessing fiscal sustainability. It summarizes the general analytical background, focusing on the present value budget constraint, which is the benchmark against which solvency is determined, tests of sustainability (including sustainability indicators), and sustainability and uncertainty. The paper then looks at the way in which fiscal sustainability has been assessed in different types of IMF work. Finally the link between fiscal and external sustainability is discussed.Budget deficits;Economic models;fiscal sustainability, fiscal policy, debt ratio, budget constraint, primary deficit, government debt, external debt, net debt, debt service, public debt, fiscal adjustment, tax ratio, fiscal policies, debt sustainability, current account, fiscal position, debt stock, public external debt, fiscal balances, fiscal vulnerability, debt relief, domestic currency, fiscal balance, external debt service, traditional debt relief mechanisms, current account deficit, fiscal deficits, government solvency, fiscal deficit, ratio of debt, relief mechanisms, external liabilities, primary expenditure, fiscal surpluses, government deficits, net external liabilities, public finances, government revenue, fiscal transparency, budget balance, debt relief mechanisms, fiscal surplus, domestic debt, traditional debt relief, foreign debt, sustainable fiscal policy, debt dynamics, taxation, fiscal affairs department, fiscal measures, fiscal outcomes, public sector debt, sovereign debt, fiscal revenues, debt ratios, debt structure, external debt sustainability, fiscal standpoint, government budget, account deficits, debt service to exports, government budget deficits, debt burden, fiscal affairs, budget constraints, primary fiscal deficit, budget deficit, debt problem, fiscal indicators, current account deficits, fiscal criterion, domestic financial markets, fiscal data, stock of debt, excessive deficits, fiscal developments, ratios of debt, fiscal scenario, annual budget, government spending, fiscal accounts, future fiscal deficits, fiscal program