Some series can be derived from existing statistical methodologies, and some are commonly used in debt monitoring systems.
Important steps have been taken and set in train to improve such data: 16.
Sharp swings in exchange and interest rates can have severe cash flow and balance sheet effects.
However, the importance of dispersion of debt across debtors, the impact of natural or explicit hedges, and a dearth of data on derivatives at a national level, mean that analysis of such vulnerability may need to be focused primarily at the level of sectors or even individual institutions. Financial institutions are particularly vulnerable to changing exchange rates and to changes in cash flow, such as withdrawal of foreign currency deposits or credit lines by foreign banks.
At present, the availability of the indicators proposed in this paper varies considerably.By allowing consideration of shorter or longer periods of limited access to capital markets, capital flight, FDI flows and the projected current account deficit, stress tests are useful in identifying major liquidity risks, as well as strategies to mitigate them. Debt sustainability should be assessed in the context of medium-term scenarios: “snapshot” indicators do not take account of the prospects for the growth of output and exports, or for fiscal performance. The maturity structure of debt is a critical element in crisis prevention.Differing macroeconomic prospects, as well as differences in microeconomic conditions across countries, limit the scope for cross-country benchmarks. It is to some extent captured in the reserves to short-term external debt ratio discussed above.But such a benchmark would only serve as a starting point for further analysis, based on a country’s macroeconomic situation (including its “fundamentals” and its exchange rate regime) and on the microeconomic conditions that affect the functioning of the private sector (e.g., taxes, implicit and explicit guarantees, banking supervision, the bankruptcy regime).These microeconomic conditions can result in moral hazard, distort institutions’ financing structure, and make sectors more vulnerable to external shocks.
Other series needed to construct some of the indicators in this paper go beyond either present statistical frameworks or current common debt monitoring practice, notably indicators that are useful for monitoring individual banks or firms.