Abstract

The objective of this study is to propose a new approach for assessing the sustainability of the debt of WAEMU member States, in terms of their repayment capacity. In this regard, a new analytical framework has been proposed. The methodology derived from the empirical studies by Bouabdallah et al. (2017) and the IMF (2018) is based on a synthesis of deterministic and stochastic analysis using the bootstrap simulation method as well the analysis of the relationship between the determinants of solvency, the quality of institutions and country risk using a principal component analysis.

The results for the determinist simulations show that all the Member States of the Union would respect the convergence criterion of debt ratio to GDP of 70% while those integrating uncertainties (stochastic shocks) show that Senegal and Guinea-Bissau could not meet this threshold. In addition, the relationship between the determinants of solvency and institutionnal factors is heteregenous.

In terms of recommendations, it should be noted that the context of the Covid-19 pandemic is a source of additional debt risk for WAEMU member states. In this regard, liquidity risks relating to insufficient fiscal revenue, the decline in exports due to the global recession as well as the increase in public spending could affect the economies of the Union. A reinforcement of the macroeconomic mix (policy mix) would smooth the negative impact of the crisis in the short term. In the long term, the question of the repayment capacity of States would be based on increased diversification of the economies and an improvement of institutions’ governance.

Keywords: debt, bootstrap, principal component analysis

JEL code: F34, C53, C38