Safe Debt and Uncertainty in Emerging Markets

Download or read book Safe Debt and Uncertainty in Emerging Markets written by Mr.Magnus Saxegaard and published by International Monetary Fund. This book was released on 2014-12-19 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a methodology for estimating a safe public debt level that would allow countries to remain below a maximum sustainable debt limit, taking into account the impact of uncertainty. Our analysis implies that fiscal policy should target a debt level well below the debt ceiling to allow space to absorb shocks that are likely to hit the economy. To illustrate our findings we apply the methodology to estimate a safe debt level for South Africa. Our results suggest that South Africa’s debt ceiling is around 60 percent of GDP, although uncertainty is high. Simulations suggest targeting a debt-to-GDP ratio of 40 percent of GDP would allow South Africa to remain below this debt ceiling over the medium-term with a high degree of confidence.