The assessment of debt sustainability and repayment capacity, for the member state requesting financial assistance, will be carried out on a transparent and predictable basis. Assessments for financial assistance programmes will be carried out by the Commission in liaison with the ECB, and the ESM.
For the preparation of the debt sustainability analysis (“DSA”), the Commission will work on the basis of its growth forecasts and estimates, existing stocks and stock-flow adjustments, net borrowings and fiscal path, incorporating also the Commission’s assessment of compliance with Stability and Growth Pact requirements. The ESM will contribute to the DSA with the analysis of the Member’s financing plans and cost of funding, which entails the assessment of the liquidity position, sovereign bond market and potential risks stemming from the size and structure of outstanding debt, debt issuance plans, interest rate developments, refinancing capacity and market access.
The repayment capacity assessment builds upon and complements the debt sustainability analysis and shifts the focus to the beneficiary Member State’s ability to manage its overall payment obligations, or liabilities, in a way ensuring the repayment to the ESM over the entire horizon of the lending relationship.
The general expectation is that institutions will come to a common view and present the debt sustainability and the repayment capacity assessments to the ESM decision-making bodies. In case the collaboration does not yield a common view, the Commission makes the overall assessment of the sustainability of the public debt, while the ESM assesses the capacity of the Member concerned to repay ESM loans.