PUBLIC DEBT SUSTAINABILITY ANALYSIS IN MARKET-ACCESS COUNTRIES
INTERNATIONAL MONETARY FUND 27
mitigating factor. In general, staff is encouraged to investigate weaknesses in any sector that may
present significant implicit or explicit contingent liabilities. Non-financial sector CL shocks should be
analyzed in the DSA as customized scenarios.
41. When discussing CLs in DSAs, especially ones associated with the financial system,
staff should be mindful of confidentiality policies, moral hazard, and market sensitivity
issues.
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The Fund’s Transparency Policy defines the key elements of the IMF's policy on publication
of Board documents, including safeguards to maintain the frankness of policy discussions with
members and the appropriate balance between transparency and confidentiality. These safeguards
include the possibility for members to request deletions of highly market-sensitive material.
E. Fan Charts
42. Fan charts provide a probabilistic view of the uncertainty around the baseline. While
the stress tests presented above assess the sensitivity of debt dynamics to key exogenous and policy
variables, fan charts show a spectrum of possible outcomes based on the stochastic properties of
country-specific data. In particular, fan charts incorporate feedback between macroeconomic
variables that drive the debt dynamics and can rely on historical data to calibrate the persistence of
shocks. A simple fan chart tool designed by FAD is included in the MAC DSA template and is
required for higher scrutiny countries (Box 4). Staff should present both a symmetric fan chart for
which upside and downside risks are treated as equally likely, as well as an asymmetric fan chart
representing staff’s best assessment of the likelihood of shocks.
43. The fan charts provided in the template can be complemented by alternative fan
charts based on vector autoregression. If staff includes fan charts based on other methodologies,
staff should clearly point out the underlying assumptions including (i) the sample period;
(ii) variables included in the underlying model and lag length; (iii) inclusion/exclusion of a fiscal
policy reaction function; and (iv) the definition of the central scenario (macroeconomic framework or
the projection of the underlying model). Staff can also draw on the work already undertaken in the
context of the vulnerability exercises to produce fan charts.
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Note that requirements to assess fiscal risks associated with the assumption of CLs are part of internationally-
accepted accounting and statistical standards. The International Public Sector Accounting Standards (IPSAS) for
accrual accounting require disclosure of contractual contingent liabilities when the possibility of payment is “not
remote.” Under cash accounting, disclosure similar to that under accrual standards is recommended, though not
required. Disclosure of key contingent liabilities is also required as a memorandum item to the balance sheet under
statistical reporting standards, such as the Government Finance Statistics Manual 2001, while further risk disclosure
recommendations are included in various fiscal transparency initiatives, such as the IMF Code of Good Practices on
Fiscal Transparency, the IMF Manual on Fiscal Transparency, and the OECD Best Practices.
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So far, fan charts have been estimated for 26 EMs (Hungary, Latvia, Turkey, Iceland, Croatia, Israel, Lithuania,
Poland, Romania, Russia, Ukraine, Brazil, India, Mexico, South Africa, Dominican Republic, Malaysia, Thailand,
Venezuela, Bulgaria, Estonia, China, Korea, Chile, Indonesia, and Peru) and for 3 AEs (Greece, Ireland, and Portugal).