DEBT SUSTAINABILITY ASSESSMENT IN HIGH UNCERTAINTY ENVIRONMENT

Abstract

The aim of this article is to examine contemporary approaches to assessing sovereign risk from the perspective of their applicability to Ukraine at the present stage. The relevance of its topic lies in rapidly deteriorating economic conditions both in Ukraine and worldwide due to local conflicts and international trade decline. Based on the literature review it is possible to conclude that despite the high level of methodological sophistication of the existing approaches to sovereign debt sustainability assessment, none of them provides a precise and unbiased analysis due to imperfect assumptions embedded in the forecasts on which they are based. Assessments conducted by borrowers are subject to moral hazard, while those carried out by creditors (in particular the IMF) often rely on unjustifiably optimistic assumptions. Increasing methodological complexity reduces transparency, whereas the extensive use of scenario analysis makes assessment results inflexible and poorly suited to crisis conditions. Dependence on formal debt thresholds, stress-testing exercises, and narrow definitions of public debt obscure fiscal risks arising from contingent liabilities, subnational borrowing, and state-owned enterprises, while insufficiently capturing feedback effects between public debt dynamics and financial markets. Alternative quantitative approaches, such as risk-based or Value-at-Risk methods, are shown to improve theoretical rigor at the cost of transparency and policy applicability. Under current circumstances of global uncertainty and disruptions to international trade, such methods are likely to lose relevance, since prevailing debt sustainability frameworks are best suited to “normal” macroeconomic environments and are ill-equipped to address extreme conditions such as deep crises or war. The practical value of this article lies in identifying the limitations and biases of existing methods for sovereign debt sustainability assessment, which supports more cautious and adaptive fiscal planning, particularly under conditions of high uncertainty, war-related shocks, and disrupted trade.