Safe Debt and Uncertainty in Emerging Markets: An Application to South Africa

December 19, 2014

Preview Citation

Format: Chicago

Magnus Saxegaard. Safe Debt and Uncertainty in Emerging Markets: An Application to South Africa, (USA: International Monetary Fund, 2014) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops a methodology for estimating a safe public debt level that would allow countries to remain below a maximum sustainable debt limit, taking into account the impact of uncertainty. Our analysis implies that fiscal policy should target a debt level well below the debt ceiling to allow space to absorb shocks that are likely to hit the economy. To illustrate our findings we apply the methodology to estimate a safe debt level for South Africa. Our results suggest that South Africa’s debt ceiling is around 60 percent of GDP, although uncertainty is high. Simulations suggest targeting a debt-to-GDP ratio of 40 percent of GDP would allow South Africa to remain below this debt ceiling over the medium-term with a high degree of confidence.

Subject: Asset and liability management, Debt limits, Expenditure, Fiscal policy, Fiscal stance, Public debt

Keywords: Accumulation equation, Africa, Debt benchmark, Debt ceilings, Debt forecast, Debt level, Debt limits, Debt maturity, Debt obligation, Debt rating, Debt ratio, Debt sustainability, Debt tolerance, Discount rate, Financial crisis, Fiscal stance, Global, Government debt, Multiplier effect, Potential GDP, South Africa, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/231
Stock No:

WPIEA2014231
ISBN:

9781498399432
ISSN:

1018-5941

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