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Abstract:
To assess
to which extent public debt in Tunisia is sustainable in the medium term, we
apply a stochastic debt sustainability analysis, developped by Celasun, Debrun
and Ostry in 2006. In contrast with the conventional debt sustainability
analysis (DSA), this methodology explicitly takes into account the uncertainty
characterizing the emerging markets, i.e the risks stemming from the
interaction of the endogenous fiscal and macroeconomic shocks.Our
baseline projections suggested that Tunisian public debt will be unsustainable,
in average, over the whole period (2018- 2022). One of the main advantages of
this method is indeed to take uncertainty into consideration, by implementing
random draws to the debt dynamics stemming from a set of 1000 shocks, either
positive and positive, in order to generate 1000 potential debt trajectories. It was
interesting then to test the forecasting power of the stochastic methodology to
an exceptional negative shock: the COVID-19 crisis. The 2021 debt level
projected for Tunisia corresponds to our third scenario, where the Tunisian
government is not reacting to an increase in debt levels by a solid and effective
fiscal consolidation.
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