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Transmission of External Shocks in Assessing Debt Sustainability, the Case of Macedonia

Author

Listed:
  • Danica Unevska-Andonova

    (National Bank of the Republic of Macedonia)

  • Dijana Janevska-Stefanova

    (National Bank of the Republic of Macedonia)

Abstract

In the analysis of public and external debt sustainability the National Bank of the Republic of Macedonia is actively using the IMF’s Debt Sustainability Analysis (DSA) framework. The aim of our analysis is to improve the analytical power of the IMF’s DSA framework, in the case of Macedonia. This paper uses simple framework, based on methodology used in Adler and Sosa (2013), that integrates econometric estimates of the effect of global factors on key domestic variables that determine public and external debt dynamics, within the IMF‘s standard debt sustainability framework. VAR estimation is used in obtaining the forecasts of key domestic variables, conditional on a set of assumed global variables under different global shock scenarios. The results in general suggest that under all shock scenarios, there is negative effect to domestic GDP, however in the case of current account there is negative effect in the beginning of the period of applied shocks, but positive in the later period. Consequently, the expected effect to public debt sustainability is negative for the whole period due to lower real GDP growth. However, regarding external debt sustainability, negative effect is expected in the first year or two due to lower GDP growth and higher current account deficit, yet, in a medium run, external sustainability might not be jeopardized as the lower GDP growth might be neutralized by the lower current account deficit.

Suggested Citation

  • Danica Unevska-Andonova & Dijana Janevska-Stefanova, 2015. "Transmission of External Shocks in Assessing Debt Sustainability, the Case of Macedonia," Working Papers 2015-04, National Bank of the Republic of North Macedonia.
    • Handle: RePEc:mae:wpaper:2015-04
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    References listed on IDEAS

    as
    1. Gustavo Adler & Mr. Sebastian Sosa, 2013. "External Conditions and Debt Sustainability in Latin America," IMF Working Papers 2013/027, International Monetary Fund.
    2. Mr. Evan C Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Working Papers 2006/295, International Monetary Fund.
    3. Giavazzi, Francesco & Favero, Carlo A., 2007. "Debt and the Effects of Fiscal Policy," CEPR Discussion Papers 6092, C.E.P.R. Discussion Papers.
    4. Mr. Kei Kawakami & Rafael Romeu, 2011. "Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts," IMF Working Papers 2011/107, International Monetary Fund.
    5. Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-3.
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    Cited by:

    1. Memduh Alper DEMÄ°R, 2021. "External debt sustainability in the transition economies of southeast Europe: an application by wavelet-based unit root tests," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 12, pages 173-190, June.
    2. Trenovski, Borce & Mijovic-Spasova, Tamara, 2018. ""Public Debt in Southeast Europe” – Why to enable public participation?," MPRA Paper 88381, University Library of Munich, Germany.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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