Safe Debt and Uncertainty in Emerging Markets: An Application to South Africa
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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.
Series:
Working Paper No. 2014/231
Subject:
Asset and liability management Debt limits Expenditure Fiscal policy Fiscal stance Public debt
English
Publication Date:
December 19, 2014
ISBN/ISSN:
9781498399432/1018-5941
Stock No:
WPIEA2014231
Pages:
27
Please address any questions about this title to publications@imf.org