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Public Debt Sustainability Assessment: A Stochastic Approach for Tunisia

Ben Hassine Khalladi, Hela (2019): Public Debt Sustainability Assessment: A Stochastic Approach for Tunisia.

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To assess to which extent public debt in Tunisia is sustainable in the medium term, we apply a stochastic debt sustainability analysis (SDSA), developped by Celasun, Debrun and Ostry in 2006. In contrast with the conventional debt sustainability analysis (DSA), this methodology explicitly takes into account the uncertainty characterizing the emerging markets, i.e the risks stemming from the interaction of the endogenous fiscal and macroeconomic shocks (related to growth rates, interest rates and exchange rates). Fan Charts are then derived from the projected debt paths, under a baseline and alternative policy scenarios. Our baseline projections suggest that Tunisian public debt will be unsustainable, in average, over the whole period (2018- 2022). When comparing the baseline projections with alternative policy scenarios, we can ascertain the high importance of a timely and continuous fiscal policy response to debt accumulation; otherwise, Tunisian public debt will get out of control.

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