A debt sustainability analysis of the Czech Republic and the Slovak Republic

a non parametric approach

Vlastimil Farkašovský, Colin William Lawson, Emília Zimková

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Surging public debt since the Great Recession has focused increasing attention on the issue of debt sustainability. This paper provides debt sustainability analyses for the Czech Republic and Slovakia by estimating their public debt to GDP, and primary balance to GDP ratios up until 2022 under three different projections. The first, labelled the baseline projection, predicts their debt ratios to 2022, if neither their public debt to GDP ratios nor their primary balance to GDP ratios change. This projection uses the official forecasts of the key variables. The second projection answers the question of how much the two counties have to consolidate, measured by their primary balance to GDP ratios, if they want to hold their public debt to GDP ratios at their current levels. The third projection answers the question of how much the countries have to consolidate if they aim to reattain their December 2008 pre-crisis public debt to GDP ratios. All three projections are made for the same five scenarios, which cover a status quo case, where official forecasts are realized, and both optimistic and pessimistic scenarios for growth and consolidation outcomes. The paper`s novelty lies in its development of an existing non-parametric methodology to encompass iterative numerical solution methods to assess public debt sustainability. This allows a richer set of results to be obtained, for example estimates for the required level of the public debt to GDP ratio, and the primary balance to GDP ratio, taking account of variables such as nominal interest rates, yields to maturity on public debt, inflation rates and average maturities of debt.

Original languageEnglish
Pages (from-to)18-29
Number of pages12
JournalE+M Ekonomie a Management
Volume18
Issue number3
DOIs
Publication statusPublished - 2015

Fingerprint

Slovak Republic
Public debt
Czech Republic
Debt sustainability
Maturity
Scenarios
Consolidation
Numerical solution
Nominal interest rate
Status quo
Inflation rate
Novelty
Debt
Great Recession
Methodology
Debt ratio

Keywords

  • Gross public debt stock
  • Primary balance to GDP ratio
  • Public debt sustainability
  • Public debt to GDP ratio

Cite this

A debt sustainability analysis of the Czech Republic and the Slovak Republic : a non parametric approach. / Farkašovský, Vlastimil; Lawson, Colin William; Zimková, Emília.

In: E+M Ekonomie a Management, Vol. 18, No. 3, 2015, p. 18-29.

Research output: Contribution to journalArticle

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