In this work we analyse framework for debt sustainability assessment (DSA), which is used by IMF country teams for the projections of mid-term debt-to-GDP ratio. Comparative analysis of DSA application to WB countries shows that under the baseline scenario, fiscal solvency of countries seems to be stable in period of five years ahead. Stress testing under the deterministic scheme of shocks shows
that under the certain circumstances public debt of Montenegro, Albania and Croatia could turn to reach such high levels of debt-to-GDP that arguably could not be sustained in the long-run. Furthermore, we provide some methodological criticism and empirical evidence that DSA projections tend to underestimate or overestimate actual values even for short forecasting period ahead. We propose
methodological improvements based on Garcia and Rigobon (2004) work and apply it on Serbian monthly data, comparing the results with IMF mid-term projections. Our projections of debt-to-GDP ratio in three years ahead give the significantly higher values than those given by IMF and strongly suggest that Serbia could face considerably high levels of debt-to-GDP ratio in mid-run, even
without adverse macroeconomic shocks
