DSA Model

Contents: - Introducing Debt Sustainability Analysis - Example: Colombia - Methodology Introducing Debt Sustainability Analysis Alphacast has integrated into it's platform a Debt Sustainability Analysis (DSA) Tool. Basically, this tool can help you forecast the Debt/GDP ratio of a country, taking into account specific characteristics such as growth, inflation, interest rates on domestic and foreign debt, exchange rate depreciation and primary surplus. The tool also applies shocks to generate a fan-chart style chart so it can account for uncertainty into the forecasts (see Methodology for more information). It will take literally less than a minute to generate charts just like this one below. Click here for a detailed explanation on how to use our new tool. Read below some examples to illustrate how to use this tool to produce your own analysis. Example: Colombia Over the past few years, Colombia has registered consecutive primary deficits and low growth rates. Recently, the government tried to reduce its primary deficit, so they could put public debt on a sustainable path again. Colombia's debt is primarily internal, although the country has sizable external liabilities as well, with about a third of total borrowing coming from international sources. In our base scenario we assume...

Contents: - Introducing a new tool for economic analysis - Example 1: Brazil's debt looks sustainable - Example 2: Peru in need of fiscal adjustment - Methodological appendix Introducing a new tool for economic analysis Alphacast has integrated into it's platform a Debt Sustainability Analysis (DSA) Tool. Basically, this tool can help you forecast the Debt/GDP ratio of a country, taking into account specific characteristics such as growth, inflation, interest rates on domestic and foreign debt, exchange rate depreciation and primary surplus. The tool also applies shocks to generate a fan-chart style chart so it can account for uncertainty into the forecasts (see the Appendix for more information). It will take literally less than a minute to generate charts just like this one below. Click here for a detailed explanation on how to use our new tool. Read below some examples to illustrate how to use this tool to produce your own analysis. Example 1: Brazil's debt looks sustainable Over the past few years, Brazil has registered consecutive primary deficits and low growth rates. Recently, the government tried to reduce its primary deficit, so they could put public debt on a sustainable path again. Interesting to note, Brazil has a...

This is a quick, step by step, guide on how to implement a DSA using Alphacast's pipelines. First, you need to open the pipeline tool. Select the repository you want the pipeline to be in and give a name to your pipeline. After that just click on "Create". Then, you have to select your input dataset. This dataset must contain the historical annual data for the following variables: real GDP growth, the variation of the GDP deflator, the Debt/GDP ratio, the exchange rate devaluation of the exchange rate between the local currency and the US Dollar, the implicit interest rate of the domestic Public Debt, the implicit interest rate of the foreign Public Debt and the ratio of the foreign Public Debt and the total Public Debt. If you are interested in analyzing LAC countries, you can use the same dataset used in our example. Check its contents here. Just type the dataset, select it, and save the first step. On the next step, you need to select the option "Debt Sustainability Analysis". After selecting the country you want to analyze (this will be based on your dataset), you must define the baseline forecasts. This can be based on your...

Our Debt Sustainability Model uses the standard debt dynamic equation to generate forecasts for the Debt/GDP ratio throughout the next 10 years. Specifically, we use the following the equation: $$ d{t+1} =d{t}\biggl[(1-\alpha)\biggl(\frac{1+i{dt}}{(1+gt)(1+\pit)}\biggl) +(\alpha)\biggl(\frac{(1+\Delta\epsilont)(1+i{ft})}{(1+gt)(1+\pit)}\biggl)\biggl] + pdt $$ In which: $$d_{t+1}$$ is the ratio Debt/GDP for the t+1 period; $$\alpha$$ is the share of foreign debt in relation to total debt; $$g_t$$ is the real growth of GDP at the period t; $$\pi_t$$ is the variation of the GDP deflator for the period t; $$\Delta\epsilon_t$$ is the devaluation of the exchange rate between the local currency to the US dollar during the period t; $$i_{dt}$$ is the implicit interest rate for the domestic debt, it is calculates as the ratio between the interest paid for the internal debt during the period t and the internal debt in the period t-1; $$i_{ft}$$ is the implicit interest rate for the foreign debt, it is calculates as the ratio between the interest paid for the internal debt during the period t and the internal debt in the period t-1; $$pd_t$$ is the primary deficit of the government during the period t. We account for uncertainty by applying random shocks for each variable. These shocks are...