transfers to recipient countries—effectively providing more gross transfers to those countries with higher debt-service payments—debt sustainability is a particularly blurred concept in these countries. Debt can be serviced for long periods, or suddenly become unsustainable, depending on the willingness of official creditors and donors to provide positive net transfers through concessional loans and grants." We recognize an important qualification. Discounting remains of crucial importance for two purposes:

1. Discounting concessional loans from donors to calculate their grant element.

2. Assessing fair burden sharing across creditors when a country defaults and the net present value of debt is being reduced, in line with the ‘comparability of treatment’ principle.

But in the assessment of debt sustainability which, by its nature, attempts to provide early warning and is aimed at _crisis prevention_ rather than _debt restructuring_ , discounting only obscures the picture, as we shall demonstrate. In the case of debt restructuring, the choice of an appropriate discount rate remains a complex topic (see, for example, Kozack (2005) and Lazard (2022)).

_Nominal Public Debt and Its Dynamics, Plus Market Signals_ Table 2 presents data on Ghana’s nominal public (government) debt levels and the variables determining its dynamics during 2013-15 using the data available in IMF (2016).

**Table 2: Ghana’s Public Debt Dynamics 2013-15**

||2013|2014|2015(estimate)|
|---|---|---|---|
|1. Public Debt(% of GDP) **d**|56.7|70.7|77.9|
|_2. Foreign currency share(%)_|_54.1_|_60.0_|_67.0_|
|3. Primarydeficit(% of GDP) **pd**|5.6|3.3|-0.1|
|4. Real interest rate**r**(%)|6.0|19.3|8.1|
|5. Realgrowth rate**g** (%)|7.3|4.0|3.0|

_Source_ : Table 2 in the DSA annex in IMF (2016). Real interest rates computed by authors based on Annex 1.

Table 2 gives the ratio of public debt to GDP and the standard variables that describes its expected path: pd, r and g. The real interest, r, shown is a composite of the interest rates on local currency (cedi) and foreign currency (fx) debt. It includes the capital gain or loss on fx debt resulting from currency depreciation/appreciation. Hence, there is no separate real exchange rate effect as in the LIC DSF. Thus, r is the equivalent of the real interest rate that would prevail in a single-currency environment. Box 1 uses a numerical example to illustrate exactly what this means, while Annex 1 derives the formula for r using information already available in the LIC DSF.

**<mark>Box 1: Public Debt Dynamics in LIC DSF Countries: What does (r-g) mean in a multicurrency context?</mark>**

<mark>When the government borrows only in local currency, (r-g) is easy to understand. For example, in continuous time, the trajectory of the government or public debt-to-GDP ratio d is given by</mark> (a) <mark>d = pd + (r −g)d . In this case, if d exceeds some market-determined threshold (as signaled by interest rates and bond spreads), pd>0</mark> <mark>In this case, if d exceeds some market-determined threshold (as signaled by interest rates and bond spreads), pd>0 and r>g, the debt trajectory will be considered to be on an explosive path absent decisive reform to raise primary</mark> 9