Publication: Assessing Public Debt Sustainability in Mauritania with a Stochastic Framework
Date
2014-11
ISSN
Published
2014-11
Author(s)
Baghdassarian, William
Mele, Gianluca
Pradelli, Juan
Abstract
This work presents a stochastic
framework for assessing public debt sustainability and
applies it to the case of Mauritania. The sustainability
assessment projects solvency and liquidity indicators --
public debt stock and gross financing needs relative to GDP
-- for 2014-23. The analysis uses deterministic scenarios
and stochastic simulations to analyze policy options and
fiscal risks. The study relies on simple econometric models
to generate forecasts of key macroeconomic variables driving
the public debt dynamics and to compute debt-distress
probabilities and debt thresholds. The study builds on basic
techniques to determine optimal portfolios suitable as
benchmarks for public debt management. A main result is
that, if Mauritania maintains a strong growth performance
and pursues sound policies to balance the budget and take
advantage of concessional financing opportunities, it could
reduce the public debt from 74 percent of GDP in 2013 to 30
percent by 2023, and the gross financing needs from 12
percent of GDP to 4 percent. Further scaling up capital
spending is likely to deteriorate public debt sustainability
because the estimated (marginal) growth-dividend is small. A
more promising avenue would be to improve the quality of
public investment and institutions, as opposed to the volume
of capital expenditure. Different debt strategies can
significantly affect the liquidity needs and the on-budget
interest bill. But it is the fiscal policy geared toward
balanced budgets that ultimately would permit Mauritania to
improve the solvency indicators, and thus the public debt sustainability.
Citation
“Baghdassarian, William; Mele, Gianluca; Pradelli, Juan. 2014. Assessing Public Debt Sustainability in Mauritania with a Stochastic Framework. Policy Research Working Paper;No. 7088. © World Bank Group, Washington, DC. http://hdl.handle.net/10986/20628 License: CC BY 3.0 IGO.”
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