## Public Debt Dynamics and Intra-Year Exchange Rate Fluctuations

_IMF Working Papers, November 20, 2020_

## Source details

**Canonical URL:** [Public Debt Dynamics and Intra-Year Exchange Rate Fluctuations](https://www.imf.org/en/publications/wp/issues/2020/11/20/public-debt-dynamics-and-intra-year-exchange-rate-fluctuations-49904)

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## Bibliographic details
- Authors: Santiago Acosta Ormaechea
- Published: November 20, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513561585.001

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### Summary
- The paper examines how converting foreign currency denominated flows and stocks into local currency using average and end-of-period exchange rates, respectively, produces an identifiable stock-flow adjustment term due to intra-year exchange rate fluctuations.
- Inclusion of this stock-flow adjustment term is critical to accurately project public debt levels and related indicators used to assess the risk of debt distress.
- Using a novel dataset covering 82 countries during 2008–19, the paper finds the stock-flow adjustment term can be sizable in episodes of large exchange rate depreciations.

### Key findings
- The stock-flow adjustment term arising from intra-year exchange rate fluctuations affects public debt accumulation and debt-to-GDP ratios.
- In countries experiencing large exchange rate depreciations (namely above the 99th percentile of the full sample), the stock-flow adjustment term can reach 1.2 percent of GDP.
- Measurement of policy-related concepts is affected by intra-year exchange rate fluctuations in non-negligible ways, including:
  - Interest rate-growth differentials.
  - Debt stabilizing primary balances.

### Policy and measurement implications
- Debt projections that omit the intra-year stock-flow adjustment term may misstate public debt levels and misinform assessments of debt distress risk.
- Accurate measurement of interest rate-growth differentials and debt stabilizing primary balances requires accounting for intra-year exchange rate fluctuations to avoid distortions.

### Dataset and scope
- Sample: 82 countries.
- Period covered: 2008–19.
- Analysis focuses on episodes of heightened exchange rate volatility and nominal exchange rate depreciation.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2020/11/20/public-debt-dynamics-and-intra-year-exchange-rate-fluctuations-49904_