Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies

38 Pages Posted: 19 Jul 2016

See all articles by George Kopits

George Kopits

Woodrow Wilson International Center for Scholars; Portuguese Public Finance Council; Central European University (CEU)

Benno Ferrarini

Asian Development Bank

Arief Ramayandi

Asian Development Bank - Economic Research

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

Kopits, George and Ferrarini, Benno and Ramayandi, Arief, Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies (May 2016). Asian Development Bank Economics Working Paper Series No. 483, Available at SSRN: https://ssrn.com/abstract=2811532 or http://dx.doi.org/10.2139/ssrn.2811532

George Kopits (Contact Author)

Woodrow Wilson International Center for Scholars ( email )

One Woodrow Wilson Plaza
1300 Pennsylvania Avenue, N.W.
Washington, DC 20004-3027
United States

Portuguese Public Finance Council ( email )

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051
Hungary

Benno Ferrarini

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Arief Ramayandi

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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