Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies
38 Pages Posted: 19 Jul 2016
Date Written: May 2016
Abstract
The paper explores risk-based fiscal analytical approaches to complement a standard debt sustainability analysis when applied under conditions of risk and uncertainty. To outline a possible road map for risk-adjusted fiscal sustainability analysis, the paper first examines the types of vulnerability faced by different emerging economies in Asia and reviews a range of stochastic methods that attempt to explicitly incorporate risk in their analysis. Drawing on international experience, we note that the usefulness of applying a stochastic approach hinges on policy makers’ capacity to identify the sources and extent of risks in assessing fiscal sustainability, which should then allow them to simulate the impact of a hypothetical corrective action on the baseline trajectory of debt or net worth and on its stochastic distribution, including fat-tail risks of default.
Keywords: fiscal sustainability, risk-based fiscal analysis, sovereign debt, stochastic approach
JEL Classification: D81, E62, G13, H63
Suggested Citation: Suggested Citation