Project Debt-to-GDP Path — dk

Projects a debt-to-GDP ratio forward using the standard debt dynamics equation:

Usage

dk_project(
  debt,
  interest_rate,
  gdp_growth,
  primary_balance,
  sfa = 0,
  horizon = 10,
  date = NULL
)

Arguments

debt: Numeric scalar. Initial debt-to-GDP ratio (e.g., 0.90 for 90 per cent of GDP).
interest_rate: Numeric scalar or vector of length horizon. Nominal effective interest rate on government debt.
gdp_growth: Numeric scalar or vector of length horizon. Nominal GDP growth rate.
primary_balance: Numeric scalar or vector of length horizon. Primary balance as a share of GDP. Positive values denote a surplus; negative values a deficit.
sfa: Numeric scalar or vector of length horizon. Stock-flow adjustment as a share of GDP. Default 0.
horizon: Integer scalar. Number of years to project forward. Default 10.
date: Optional Date. If supplied, the projection is anchored to this date (stored in the output for labelling purposes).

Value

An S3 object of class dk_projection containing:

debt_path: Numeric vector of length horizon + 1, giving the debt-to-GDP ratio from the initial period through the terminal period.
decomposition: A data.frame with columns year, debt, interest_effect, growth_effect, snowball_effect, primary_balance_effect, sfa_effect, and change.
horizon: The projection horizon.
inputs: A list storing all input parameters.

Details

$$d_{t+1} = \frac{1 + r_t}{1 + g_t} d_t - pb_t + sfa_t$$

where $d$ is the debt-to-GDP ratio, $r$ is the effective nominal interest rate on government debt, $g$ is nominal GDP growth, $pb$ is the primary balance as a share of GDP (positive = surplus), and $sfa$ captures stock-flow adjustments (e.g. privatisation receipts, exchange-rate valuation changes, below-the-line operations).

References

Blanchard, O.J. (1990). Suggestions for a New Set of Fiscal Indicators. OECD Economics Department Working Papers, No. 79. doi:10.1787/budget-v2-art12-en

International Monetary Fund (2013). Staff Guidance Note for Public Debt Sustainability Analysis in Market-Access Countries. IMF Policy Paper.

Examples

d <- dk_sample_data()
proj <- dk_project(
  debt = tail(d$debt, 1),
  interest_rate = 0.03,
  gdp_growth = 0.04,
  primary_balance = 0.01
)
proj
#> 
#> ── Debt Sustainability Projection ──────────────────────────────────────────────
#> • Horizon: 10 years
#> • Initial debt/GDP: 69%
#> • Terminal debt/GDP: 53.1%
#> • Change: -15.9 pp
#> • Debt-stabilising primary balance: -0.5%
plot(proj)