Public Debt Sustainability Analysis for Market Access Countries (MACs): The IMF s Framework. S. Ali Abbas International Monetary Fund

Transcription

1 Public Debt Sustainability Analysis for Market Access Countries (MACs): The IMF s Framework S. Ali Abbas International Monetary Fund September 215 1

2 Outline Motivation for 213 MAC DSA reform Risk - Based Approach Lower Scrutiny DSA (Basic DSA) Higher Scrutiny DSA (Additional modules) Realism of Baseline Assumptions Heat Map: Stress Tests and Debt Profile Fan Charts DSA Write Up 2

3 Traditionally, the focus was mainly on debt trajectories. 3

4 Key Features of the MAC DSA Risk - based approach More analysis for countries with potentially greater vulnerabilities Multifaceted analysis Realism of underlying assumptions Risks to debt level, gross financing needs, and debt profile, macro- fiscal nexus, and bank- sovereign nexus Clear and transparent presentation of results Standardized charts and tables, fan charts, heat map, write- up Risk assessment based on benchmarks derived from early warning model Toolkit is flexible and can be tailored to country- specific circumstances 4

5 Risk- Based Approach Public debt to GDP > 5/6% for EMs/AEs Public gross financing needs (GFN) to GDP > 1/15% for EMs/AEs Exceptional access to Fund resources Lower scrutiny Judgment Higher scrutiny 5

6 Risk- Based Outputs Lower scrutiny Higher scrutiny Basic DSA Basic DSA where relevant Customized and contingent liabilities analysis Realism of baseline assumptions Heat map, stress tests, debt profile, fan charts DSA write- up 6 6

7 Basic DSA - 1 Debt, Economic and Market Indicators 1/ Actual Projections As of June 15, 214 2/ Sovereign Spreads Nominal gross public debt EMBIG (bp) 3/ 16 Public gross financing needs Y CDS (bp) 9 Real GDP growth (in percent) Ratings Foreign Local Inflation (GDP deflator, in percent) Moody's Baa2 Baa2 Nominal GDP growth (in percent) S&Ps BBB BBB Effective interest rate (in percent) 4/ Fitch BBB+ BBB Debt- Creating Flows (in percent of GDP) projection Primary deficit Real GDP growth Real interest rate Exchange rate depreciation Other debt- creating flows Residual Change in gross public sector debt - 15 cumulative 7

8 Basic DSA - 2 Composition of Public Debt By Maturity (in percent of GDP) 12 Medium and long- term Short- term 1 8 By Currency (in percent of GDP) 12 Local currency- denominated Foreign currency- denominated projection 4 projection Alternative Scenarios Baseline Historical Constant Primary Balance Gross Nominal Public Debt (in percent of GDP) projection Public Gross Financing Needs (in percent of GDP) projection

9 Risk- Based Outputs Lower scrutiny Higher scrutiny Basic DSA Basic DSA where relevant Customized and contingent liabilities analysis Realism of baseline assumptions Heat map, stress tests, debt profile, fan charts DSA write- up 9

10 Realism of Baseline: Higher Scrutiny Cases 1

11 Realism of Baseline Forecast Track Record, versus surveillance countries pessimistic optimistic Real GDP Growth (in percent, actual- projection) Italy median forecast error, : Has a percentile rank of: Distribution of forecast errors: 1/ Interquartile range (25-75) Median Italy forecast error % Year 2/ Primary Balance (in percent of GDP, actual- projection) Italy median forecast error, : Has a percentile rank of: Distribution of forecast errors: 1/ Interquartile range (25-75) Median Italy forecast error.49 68% Year 2/ Inflation (Deflator) (in percent, actual- projection) Italy median forecast error, : Has a percentile rank of: Distribution of forecast errors: 1/ Interquartile range (25-75) Median Italy forecast error % Year 2/ Assessing the Realism of Projected Fiscal Adjustment Boom- Bust Analysis 3/ 3- Year Adjustment in Cyclically- Adjusted Primary Balance (CAPB) 5/ (Percent of GDP) Less Distribution 4/ Italy has a percentile rank of 18% year CAPB adjustment g reater than 3 percent of GDP in approx. top quartile More 3- Year Average Level of Cyclically- Adjusted Primary Balance (CAPB) (Percent of GDP) Less Distribution 4/ Italy has a percentile rank of 9% year average CAPB level g reater than 3.5 percent of GDP in approx. top quartile More Real GDP growth (in percent) Italy t- 5 t- 4 t- 3 t- 2 t- 1 t t+ 1 t+ 2 t+ 3 t+ 4 t+ 5

12 Forecast Track Record Real GDP Growth (in percent, actual- projection) Example median forecast error, : Has a percentile rank of: Distribution of forecast errors: 1/ Interquartile range (25-75) Median Example forecast error % Year 2/ Primary Balance (in percent of GD P, actual- projection) Example median forecast error, : Has a percentile rank of: Distribution of forecast errors: 1/ Interquartile range (25-75) Median Example forecast error.49 75% Year 2/ 12

13 Projected Fiscal Adjustment 3- Year Adjustment in Cyclically- Adjusted Primary Balance (CAPB) (Percent of GDP) D istribution 4/ Example Less More 13

14 Risk- Based Outputs Lower scrutiny Higher scrutiny Basic DSA Basic DSA where relevant Customized and contingent liabilities analysis Realism of baseline assumptions Heat map, stress tests, debt profile, fan charts DSA write- up 14

15 Three additional modules: Heat Map, Debt Profile, Fan Charts 15

16 Heat Map Heat Map 16

17 Heat Map 17

18 Stress Tests 18

19 Snap Shot of recent DSAs for G2 Countries: Debt Level AE/EM Scrutiny Country Debt to GDP Growth Shock Primary Balance Shock Interest Rate Shock Exchange Rate Shock Contingent Liability Shock AM Higher Canada AM Higher France AM Higher Germany AM Higher Italy AM Higher Japan AM Higher Spain AM Higher United Kingdom AM Higher United S tates AM Lower Australia AM Lower Korea EM Higher Brazil EM Higher India EM Higher Mexico EM Higher South Africa EM Higher Turkey EM Lower China EM Lower Indonesia EM Lower Russia EM Lower Saudi Arabia

20 Snap Shot of recent DSAs for G2 Countries: Gross Financing Needs AE/EM Scrutiny Country GFN to GDP Growth Shock Primary Balance Shock Interest Rate Shock Exchange Rate Shock Contingent Liability Shock AM Higher Canada AM Higher France AM Higher Germany AM Higher Italy AM Higher Japan AM Higher Spain AM Higher United Kingdom AM Higher United S tates AM Lower Australia AM Lower Korea EM Higher Brazil EM Higher India EM Higher Mexico EM Higher South Africa EM Higher Turkey EM Lower China EM Lower Indonesia EM Lower Russia EM Lower Saudi Arabia

21 Risk- Based Outputs Lower scrutiny Higher scrutiny Basic DSA Basic DSA where relevant Customized and contingent liabilities analysis Realism of baseline assumptions Heat map, stress tests, debt profile, fan charts DSA write- up 21

22 DSA Write Up Presents overall assessment of debt sustainability risks Highlights vulnerabilities and country specific circumstances that mitigate or amplify risks Discusses background and key assumptions including realism of the baseline 22

23 Thank you! 23

24 Additional slides 24

25 Fan Charts: Stochastic Simulations of Debt Paths Evolution of Predictive Densities of Gross Nominal Public Debt (in percent of GDP) Baseline Percentiles: 1th- 25th 25th- 75th 75th- 9th Symmetric Distribution Restricted (Asymmetric) Distribution Restrictions on upside shocks: no restriction on the g rowth rate shock no restriction on the interest rate shock is the max positive pb shock (percent GD P) no restriction on the exchange rate shock

26 Debt Profile Example Debt Profile Vulnerabilities (Indicators vis- à- vis risk assessment benchmarks, in 213) Lower early warning Upper early warning 35% % bp % Bond spread External Financing Requirement Annual Change in Short- Term Public Debt Public Debt Held by Non- Residents Public Debt in Foreign Currency (in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total) (in percent of total) 26

27 Snap Shot of recent DSAs for G2 Countries: Debt Profile AE/EM Scrutiny Country Market Perception External Financing Requirement Change in the Share of ST Debt Public Debt Held by Non- Residents Foreign Currency Debt AM Higher Canada AM Higher France AM Higher Germany AM Higher Italy AM Higher Japan AM Higher Spain AM Higher United Kingdom AM Higher United S tates AM Lower Australia AM Lower Korea EM Higher Brazil EM Higher India EM Higher Mexico EM Higher South Africa EM Higher Turkey EM Lower China EM Lower Indonesia EM Lower Russia EM Lower Saudi Arabia