Download External Conditions and Debt Sustainability in Latin America

WP/13/27
External Conditions and
Debt Sustainability in Latin America
Gustavo Adler and Sebastián Sosa
© 2013 International Monetary Fund
WP/13/
IMF Working Paper
Western Hemisphere Department
External Conditions and Debt Sustainability in Latin America*
Prepared by Gustavo Adler and Sebastian Sosa
Authorized for distribution by Dora Iakova
January 2013
This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily
represent those of the IMF or IMF policy. Working Papers describe research in progress by the
author(s) and are published to elicit comments and to further debate.
Abstract
Highly favorable external conditions have helped Latin America strengthen its economic
fundamentals over the last decade. But, has the region built enough buffers to guard itself
from a weakening of the external environment? This paper addresses this question by
developing a simple framework that integrates econometric estimates of the effect of
global factors on key domestic variables that determine public and external debt
dynamics, with the IMF‘s standard debt sustainability framework. Results suggest that,
while some countries in the region are well placed to withstand moderate or even large
shocks, many would benefit from having stronger buffers to be in a position to deploy
countercyclical policies, especially under tail events. External sustainability, on the other
hand, does not appear to be a source of concern for most countries.
JEL Classification Numbers: C32, E62, F41, F47, H62, H63
Keywords: public debt, external debt, debt sustainability, Latin America
Author‘s E-Mail Address: [email protected]; [email protected]
__________________
* We thank Saúl Lizondo, Miguel Savastano, Charles Kramer, Dora Iakova, Gian Maria Milesi-Ferretti,
Luis Cubeddu, Oya Celasun, Ulric Erickson von Allmen, Herman Kamil, Leonardo Martinez,
Esteban Vesperoni, participants at the IMF‘s WHD seminar series, and IMF-WHD country teams for their
useful comments and feedback, and Andresa Lagerborg for her excellent research assistance.
2
Contents
Page
I. Introduction ............................................................................................................................4
II. A Decade of Falling Public and External Debt, 2003–12 .....................................................6
A. Fiscal sustainability ...................................................................................................6
Pre-Lehman Period: 2003–08 ............................................................................7
Post-Lehman Period: 2009–12 ...........................................................................8
B. External sustainability ...............................................................................................9
Pre-Lehman Period: 2003–08 ............................................................................9
Post-Lehman Period: 2009–12 .........................................................................10
III. Methodological Approach .................................................................................................11
A. Public and External Debt Sustainability Analysis ..................................................11
Public Debt.......................................................................................................11
External Debt Dynamics ..................................................................................13
B. Conditional Forecasting of Key Domestic Variables: a VAR approach .................14
C. Sovereign Spreads Module......................................................................................16
IV. Debt Dynamics Under Alternative Global Scenarios ........................................................16
A. Scenarios .................................................................................................................16
Scenario 1: Temporary Financial Shock ..........................................................17
Scenario 2: Temporary Real Shock .................................................................17
Scenario 3: A Protracted Global Slowdown ....................................................17
Scenario 4: A Tail Event ..................................................................................17
B. Key Results .............................................................................................................20
Latin America‘s overall picture .......................................................................20
Country-specific results ...................................................................................24
V. Conclusions .........................................................................................................................28
References ................................................................................................................................30
Annexes....................................................................................................................................32
Tables
1. Key Global Assumptions under Alternative Scenarios .......................................................18
2. Key Domestic Policy Assumptions under Alternative Scenarios ........................................20
3
Figures
1. Latin America: Fey Fiscal Indicators, 2002–12 ....................................................................4
2. Latin America. Key External Indicators, 2002–12 ...............................................................4
3. Factors Driving Public Debt Dynamics, 2003–12 ................................................................9
4. Components of Primary Balance Dynamics, 1995–2012 .....................................................9
5. Factors Driving External Debt Dynamics, 2003–12 ...........................................................10
6. Global Variables under Alternative Scenarios, 2003–17 ....................................................18
7. Latin America. Factors Driving Public and External Debt Dynamics under
Alternative Global Scenarios, 2003–17 ..............................................................................23
8. Latin America. Public and External Debt under Alternative Scenarios
and Policies, 2012–17 .........................................................................................................24
9. Key Fiscal Indicators under Different Scenarios, 2012–17 ................................................27
10. Key External Indicators under Different Scenarios, 2012–17 ...........................................28
4
I. INTRODUCTION
Over the last decade Latin America experienced an impressive strengthening of key
macroeconomic fundamentals (Figures 1 and 2), especially during the period 2003-08, that
ended with the global financial crisis triggered by the bankruptcy of Lehman Brothers. The
region not only displayed remarkable improvements in terms of stocks— reducing public and
external debt levels, and accumulating public and foreign assets—and flows—improving
primary fiscal and current account balances—but also notable changes towards less
vulnerable debt structures—reducing the share denominated in foreign currency and
extending maturity.
Figure 1. Latin America. Key Fiscal Indicators, 2002-12 1/
(simple average and 20th and 80th percentiles)
Average
20th perc.
80th perc.
Gross Government Debt
(percent of GDP)
100
Primary Balance
(percent of GDP)
FX-linked debt
(percent of total debt)
6
80
Short-term debt 2/
(percent of GDP)
100
15
80
3
10
60
60
0
40
40
5
-3
20
20
-6
0
2002
2005
2008
0
2002
2011
2005
2008
2011
0
2002
2005
2008
2011
2002
2005
2008
2011
Sources: IMF International Financial Statistics, and country desks.
1/ Latin America includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuel a.
2/ Excludes Bolivia and Paraguay.
Figure 2. Latin America. Key External Indicators, 2002-12 1/
(simple average and 20th and 80th percentiles)
Average
20th perc.
Gross External Debt
(percent of GDP)
80th perc.
Current Account Balance
(percent of GDP)
80
6
60
3
Reserve Accumulation 2/
(percent of GDP)
30
Short-term external debt 3/ 4/
(percent of GDP)
20
15
20
40
0
20
-3
10
10
5
-6
0
2002
2005
2008
2011
0
2002
2005
2008
2011
0
2002
2005
2008
2011
2002
2005
2008
2011
Sources: IMF International Financial Statistics, and country desks.
1/ Includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela.
2/ Cumulative flow of gross international reserves since 2002.
3/ At residual maturity.
4/ Excludes Bolivia and Paraguay.
While, undoubtedly, prudent policies played an important role, these gains reflected to a
significant extent the highly favorable external environment that the region benefited from
during this period—interrupted only temporarily during the 2008-09 international financial
crisis and characterized by strong external demand, an unprecedented boom in commodity
5
prices, and very benign global financing conditions. However, with prospects of less
favorable external conditions going forward, and even the possibility of a sharp deterioration
associated with looming risks—e.g., an escalation of the euro area financial crisis—the
regional policy debate is focusing on whether the region has taken full advantage of the
‗windfall‘. In particular: Has the region built enough buffers to guard itself from external
shocks?1,2
This paper sheds light on this question by studying the link between global variables—such
as commodity prices, world growth, and financial market conditions—and a set of domestic
variables (GDP growth, trade balance, real exchange rate, and sovereign spreads) that explain
most—if not all—of the dynamics of public and external sustainability indicators. To this
end, it develops a simple framework that integrates (i) econometric estimates of the effect of
exogenous external variables on these key domestic variables with (ii) the IMF‘s standard
framework for debt-sustainability analysis (DSA). This integrated framework allows us to
examine the evolution of public and external debt sustainability indicators (both in terms of
stocks and flows) under alternative global scenarios; and consequently assess the adequacy
of current levels of ‗buffers‘ for eleven Latin American countries.3
The study entails a methodological contribution to the existing IMF framework for public
and external DSA, as the latter is currently not equipped to assess how changes in external
conditions affect debt dynamics, given its lack of linkages between global and domestic
variables.4 Moreover, stress tests under the traditional DSA framework consider shocks to
certain variables in isolation (output growth, interest rates, etc.), without taking into account
the correlation among shocks and the joint dynamic response of some of these variables.
The paper relates to a growing literature seeking to improve debt-sustainability analysis.
Most of these recent contributions (Celasun et al, 2006; Cherif and Hasanov, 2012; Favero
and Giavazzi, 2007 and 2009; Kawakami and Romeu, 2011; and Tanner and Samake, 2008)
have focused primarily on the joint stochastic properties of shocks, aiming at developing a
probabilistic approach to DSA, including by incorporating explicit fiscal reaction functions to
take into account the policy response to shocks and the feedback effects of fiscal policy on
macroeconomic variables. Like our paper, they rely on a methodology that combines VAR
models with debt feedback to assess the impact of a set of macroeconomic shocks on public
debt dynamics. These studies, however, do not examine the impact of specific external
shocks on debt dynamics—which are highly relevant for Latin America, especially for those
economies that are highly financially integrated with international capital markets and/or rely
1
The paper focuses on debt sustainability from the perspective of potential external shocks, leaving aside other
objectives or possible shocks that could shape the desirability of larger buffers (e.g., management of nonrenewable resources, buffers to deal with possible contingent liabilities arising from private sector excesses,
etc.). The paper also leaves aside issues related to the appropriateness of the fiscal stance on cyclical grounds.
2
For a first look into this issue see IMF (2012a).
3
The sample includes all South American economies (except Guyana and Suriname) and Mexico, representing
about 95 percent of the region‘s GDP.
4
For details on the IMF‘s debt sustainability framework, see IMF (2002, 2003. 2005, 2011, and 2012b).
6
heavily on commodity exports.5 In addition, most of these papers focus on a limited set of
countries, and solely on public debt—without looking into external debt. Our paper
contributes to the literature by filling this gap.
Our main results suggest that current fiscal positions in the region are, on average, adequate
to deal with temporary and even moderate protracted external shocks, although fiscal space
to face more severe protracted shocks could be limited. At the same time, there are important
differences across countries especially with respect to their ability to deal with protracted
shocks, with countries broadly falling into three groups: (i) a group (Argentina and
Venezuela) that would face considerable fiscal sustainability issues under large shocks, and
varying constraints even under moderate ones; (ii) a second group (Brazil, Ecuador, Mexico
and Uruguay) that could manage moderate shocks but would benefit from building additional
buffers to be in a position to deploy countercyclical policies under adverse scenarios, without
reaching debt levels that could raise concerns about fiscal sustainability; and (iii) a third
group (Bolivia, Chile, Paraguay, Peru and to a lesser extent Colombia) with a relatively solid
position to withstand sizeable shocks—even responding with expansionary policies—without
putting fiscal solvency at risk. Overall, these results suggest that many countries in the region
would benefit from building further fiscal space while favorable conditions last, in order to
be in a position to actively use fiscal policy should the external environment deteriorate
markedly. In terms of the external position, our results indicate that, despite evidence of a
recent widening in current account deficits, external sustainability does not appear to be a
source of concern for Latin America in general.
The paper proceeds as follows: the next section presents key stylized facts about the factors
behind the declining debt ratios in the region over the last decade. Section III describes the
methodological approach used to examine how fiscal and external sustainability indicators
would be affected under alternative (downside) scenarios. Section IV describes the scenarios
under consideration and presents the main results, deriving an assessment of the adequacy of
current buffers. Section V concludes with the key takeaways.
II. A DECADE OF FALLING PUBLIC AND EXTERNAL DEBT, 2003-12
A. Fiscal sustainability
We first take a historical view at the drivers of public debt dynamics over the last decade,
relying on the (accounting) decomposition offered by the IMF‘s public DSA framework.6 For
consistency across countries, we focus on general government gross debt, as reported by the
World Economic Outlook. In most cases, this level of consolidation appropriately reflects the
5
The role of external conditions in driving macroeconomic outcomes in Latin America has been studied
extensively in the literature (see, for instance, Osterholm and Zettelmeyer, 2008, and Izquierdo, Romero, and
Talvi, 2007) but without exploring the implications for either fiscal or external sustainability.
6
It is important to highlight that the contributions of different factors to the changes in debt-to-GDP ratios, as
presented in the IMF‘s DSA framework, entail a simplification, as there are multiple interactions (nonlinearities) among the different factors, as described in section III.
7
level of public indebtedness.7 In addition, while the focus on gross rather than net debt
implies overlooking the recent accumulation of assets by the public sector in certain
countries, this is unlikely to distort the results as the asset accumulation, when sizeable, has
tended to coincide with low levels of gross debt, thus not changing the general conclusions of
the sustainability assessment.
Pre-Lehman Period: 2003–08
Between 2003 and 2008, Latin America witnessed a steep improvement of its fiscal
sustainability indicators, most notably bringing public debt-to-GDP ratios down, on average,
by about 30 percentage points of GDP (Figure 3). The decline was primarily driven by a
combination of the direct effect of rapid economic growth and sizeable primary surpluses.
Negative real interest rates also appeared to have played a role in the downward debt
dynamics in some countries.8 Interestingly, the marked real exchange rate appreciation
observed during this period contributed only marginally to reduce debt levels.9
There are, however, visible differences across countries in the region, particularly regarding
how they managed the rapidly raising revenues during this period. Indeed, the observed
contribution of primary surpluses is not necessarily a reflection of fiscal discipline in all
countries, as this was a period of economic bonanza characterized by strong growth and
markedly higher commodity prices, and therefore a substantial increase in fiscal revenues.10
In the LA7 group (encompassing Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and
Uruguay)11, a drop of 20 percentage points of GDP in public debt ratios reflected mainly the
contributions of primary surpluses and rapid real GDP growth, with the former being the
result of real public expenditures growing at a slower pace than booming revenues—and
generally slower than potential GDP growth—(Figure 4). Chile, Colombia, Paraguay, and
Peru displayed particularly restrained expenditure policies.12 A decomposition between
7
In the case of Argentina, intra-public sector claims (between the central government and public agencies like
the Central Bank, ANSeS, etc) have grown in recent years.
8
The accumulation of (gross) foreign assets in different types of sovereign funds was a key (partially) offsetting
factor.
9
This reflects several factors: (i) some countries with relatively high foreign currency denominated debt
(Bolivia and Peru) allowed for limited exchange rate movements during this period; (ii) in others (Brazil), most
of the appreciation occurred only after public debt had shifted markedly towards local currency instruments;
(iii) in others (Chile and Mexico) foreign currency debt represents a very low share of total public debt; and (iv)
in Uruguay, the fact that the cumulative contributions are computed from 2002 onwards, implies including the
sharp depreciation of 2002-03.
10
See IDB (2008) for an interesting discussion on this issue, Cespedes and Velasco (2011) for a comparison of
fiscal behavior during the recent boom relative to previous commodity price booms, and Frankel et al (2011) for
a broader analysis of emerging markets‘ ‗graduation‘ from fiscal procyclicality.
11
Countries are grouped based on similarities in terms of the role played by the different factors in driving the
debt dynamics.
12
See country-by-country Annex Figures A1-A4.
8
commodity and non-commodity related revenues suggests that the extraordinary increase in
revenues arose primarily from the commodity sector, as non-commodity revenues in these
economies increased in line with real GDP at rates that, while higher than those observed in
the previous decade, were broadly in line with long-term potential.13
The rest of Latin America also experienced a remarkable fall in indebtedness during this
period (averaging about 45 percentage points of GDP), although starting from much higher
debt levels.14 In these cases, the decline was mostly driven by the direct effect of the
economic boom on output (with GDP growth considerably above long-term potential, except
in Bolivia) and by negative real interest rates.15 While primary balances also played an
important role in reducing debt ratios, the extent of savings of the booming revenues (derived
both from direct taxation on the commodity sector and from taxes on broad economic
activity) was limited. Indeed, real public expenditure grew at a faster pace than potential
GDP growth and even faster than observed output growth. As a result, and in contrast to the
LA7 group, these countries spent a substantial fraction of the revenue boom.16
Post-Lehman Period: 2009–12
Public debt trends changed markedly in 2009, reflecting the effects of the global crisis. Since
then, Latin America‘s debt ratios have remained broadly stable on average, at around 35
percent of GDP, mostly on account of no further contributions from primary balances. Again,
there is a stark difference between LA7 and the rest of Latin America during this period.
After implementing significant fiscal stimulus during 2009-10, LA7 countries have been
making efforts to consolidate their fiscal positions and recompose primary surpluses (most
noticeably Chile and Peru), although the recent improvements in primary balances partly
reflect the rebound in commodity-related revenues in some cases. The result has been a
(modest) resumption of the declining trend in debt ratios in most countries of this group.
The rest of Latin America, in contrast, has shown a sustained deterioration in primary
balances since 2009, turning primary surpluses into deficits and thus contributing to push
debt ratios upwards.17 This deterioration has taken place despite the recovery of commodityrelated revenues, as expenditure has continued to grow rapidly (significantly faster than
potential GDP and even current GDP growth). In some of these economies, negative real
interest rates on public debt have continued to play an important role supporting debt
reduction (Argentina and Bolivia) or containing its increase (Venezuela).
13
For a discussion on the importance of commodity revenues in resource rich countries, see IMF (2012).
14
This group of countries includes Argentina, Bolivia, Ecuador, and Venezuela.
15
Argentina‘s debt restructuring in 2005 was a major factor driving debt ratios down. Bolivia also benefitted
from a debt relief program, of roughly 25 percent of GDP, in 2006.
16
The analysis of the composition of spending of the revenue windfall, or whether different levels of spending
were optimal from a social point of view, are beyond the scope of this paper, as our interest lies primarily on the
macro implications for debt sustainability.
17
Bolivia, which maintained primary surpluses in this period, is an exception.
9
Figure 3. Factors Driving Public Debt Dynamics, 2003-12 1/
(cumulative contributions since 2002, in percent of GDP, simple averages)
Primary deficit (rhs)
Real Exchange Rate (rhs)
Real interest rate (rhs)
Other (rhs)
Latin America
LA 7 2/
126
60
106
116
40
96
20
76
66
0
56
46
-20
86
66.2
26
35.1
-40
-60
-4
-80
-24
2008
33.7
16
6
2005
56.2
36
-14
2002
Real GDP growth (rhs)
Public Debt
2011
2002
2005
2008
60
144
40
124
20
104
Other LA Countries 3/
60
40
20
83.7
0
84
0
-20
64
-20
-40
44
-40
-60
24
37.5 -60
-80
4
-80
2002
2011
2005
2008
2011
Sources: IMF International Financial Statistics, and authors' calculations.
1/ Main factors driving public debt dynamics as identified in IMF's DSA framework.
2/ Includes Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay.
3/ Includes Argentina, Bolivia, Ecuador, and Venezuela.
Figure 4. Components of Primary Balance Dynamics, 1995-2012 1/
(Index, 2003=100 unless otherwise stated, group averages in real terms)
Commodity Revenue
Non-Comm. Revenue
Primary Expenditure 2/
Real GDP
Other LA Countries 5/
LA 7 4/
Latin America
250
250
250
200
200
200
150
150
150
100
100
100
50
50
50
1995
1998
2001
2004
2007
2010
Real GDP (at potential growth) 3/
1995
1998
2001
2004
2007
2010
1995
1998
2001
2004
2007
2010
Sources: IMF International Financial Statistics and authors' calculations.
1/ Using GDP deflator for all series. Data on commodity-related revenues for Ecuador, Mexico and Venezuela (Chile) are available from 2000 (2005).
2/ Expenditure base year equals percent of revenues in that year.
3/ Based on projected growth for 2015-17.
4/ Includes Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay.
5/ Includes Argentina, Bolivia, Ecuador, and Venezuela.
B. External sustainability
Pre-Lehman Period: 2003–08
The dynamics of external debt during this period shares some of the trends observed for
public debt. The region as a whole made significant progress in bringing down external debtto-GDP ratios in this period, reducing them by more than 30 percentage points of GDP on
average (Figure 5). Moreover, this sharp improvement was accompanied by a sizeable
accumulation of foreign assets (reaching nearly 70 percent of GDP on a cumulative basis).18
However, once again, there are visible differences between the two groups of countries
mentioned above.
18
This reflected both public policies oriented to the accumulation of international reserves and assets under
sovereign funds as well as private sector portfolio allocations (e.g., pension funds accumulating assets abroad).
10
In the LA7 group, external debt declined by 25 percent of GDP, primarily on account of the
significant real appreciation and external financing in the form of non-debt flows (especially
FDI), combined with moderate current account surpluses.
The rest of Latin America (all of which are heavy commodity exporters) witnessed an even
more remarkable drop in external indebtedness (reaching about 50 percentage points of
GDP), although starting from much higher levels. This reduction was mainly explained by
large current account surpluses—reflecting highly favorable terms of trade—as well as
sizeable real exchange rate appreciation. Unlike for the LA7 group, the role of non-debt
flows was quite limited. These economies accumulated large amounts of foreign assets
(largely by the public sector in Bolivia and Ecuador, while mostly by the private sector in
Argentina and Venezuela).
Post-Lehman Period: 2009–12
In 2009, however, the previous downward trend came to a halt—mainly reflecting a
slowdown in real appreciation and a weakening of current account balances—leaving debt
ratios at about 28-30 percent of GDP for both groups of countries.
In sum, despite the evident deterioration in debt trends after the Lehman event, the
improvement in terms of both public and external debt sustainability over the last decade has
been remarkable. At the same time, current debt levels are still, in some cases, relatively high
and close to thresholds that are typically considered risky. In this context, and being many of
these economies highly sensitive to external conditions, it is not obvious the extent to which
countries across Latin America are well placed to withstand a significant deterioration in the
external environment.
Figure 5. Factors Driving External Debt Dynamics, 2003-12 1/
(cumulative contributions since 2002, in percent of GDP, simple averages)
Real GDP growth (rhs)
CA (exc. ints pmts, rhs)
162
Non-debt flows (rhs)
Other (rhs)
Latin America
112
Interest rate (rhs)
External debt
LA 7 2/
100
152
100 180
50
102
50
61.9
0
12
28.5
-50
52
27.3
2
2005
2008
2011
50
0
80
-50
30
0
30.6
-100 -20
2002
2005
2008
2011
Sources: IMF International Financial Statistics, and authors' calculations.
1/ Main factors driving public debt dynamics as identified in IMF's standard DSA framework.
2/ Includes Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay.
3/ Includes Argentina, Bolivia, Ecuador, and Venezuela.
-50
-100
-150 -70
-150 -99
-88
100
80.1
-100 -49
-38
Other LA Countries 3/
130
51.5
62
2002
Real Exchange Rate (rhs)
-150
2002
2005
2008
2011
11
III. METHODOLOGICAL APPROACH
A. Public and External Debt Sustainability Analysis
This section describes the framework to examine how external conditions affect, through
their impact on key domestic variables, the dynamics of public and external debt ratios.19 The
framework entails mapping, by means or econometric estimates, how shocks to key global
variables—commodity prices, world growth, and financial market conditions—affect a set of
domestic variables—GDP growth, trade balance, real exchange rate, and sovereign spreads—
that enter into the laws of motion of public and external debt.
Illustration of Integrated Public and External Debt Sustainability Approach 1
IMF's Public DSA Framework
Factors Driving Public Debt
Dynamics
Interest on existing debt
Exchange Rate Valuation Effect
(on FC debt)
Real GDP Growth
Public
debt-toGDP ratio
Econometric model
IMF's External DSA Framework
Key Domestic
Variables
External
Variables
Key Domestic
Variables
Interest rate
spread
Risk free
interest rate
Interest rate
spread
Real Exchange
Rate
Financial
Conditions
Real Exchange
Rate
Real GDP
Growth
World Growth
Real GDP
Growth
Primary Balance
Revenues
Commodityrelated
revenues
Trade Balance
Factors Driving External Debt
Dynamics
Interest on existing debt
Exchange Rate Valuation Effect
(on FC debt)
Real GDP Growth
Non-Interest Current Account
Balance
Trade Balance
External
debt-toGDP ratio
Commodity
Prices
Other
Other revenues
Non-debt flows
Expenditure
Feedback
Feedback
Econometric model
1
The diagram presents a simplified illustration of the integrated framew ork for public and external debt sustainability. Details and underlying assumptions are discussed in section III.
Once the econometric model is estimated and integrated with the DSA framework, one can
undertake scenario analysis to evaluate the adequacy of the current fiscal or external position,
by generating conditional forecasts of the endogenous domestic variables.
To start, we show how the law of motion of debt ratios can be expressed as a function of the
small set of domestic variables mentioned above.
Public Debt
Consider the following equation that governs the path of public debt (in nominal, local
currency, terms):
(1)
where
is country j‘s nominal stock of public debt in period t;
(
is the stock of
foreign (domestic) currency-denominated debt;
is the nominal exchange rate vis-à-vis the
19
As in the IMF‘s standard debt sustainability framework, we focus on general government gross debt.
12
U.S. dollar;
and
are the average interest rates on foreign and local currency debt
respectively, and
is the nominal primary fiscal balance.
It is evident from the non-linearity of this equation that it is not possible to fully isolate the
contribution of each of the main economic variables to the change in public debt. One can,
however, write this equation in a way that approximates such contributions (as done in the
IMF‘s standard DSA).
Denote
as a nominal variable
expressed in percent of GDP;
, as the effective average interest rate;
as domestic inflation (GDP
deflator);
as real GDP growth and
as the nominal depreciation of the domestic
currency vis-à-vis the US dollar. Then, defining
as the share of localcurrency denominated debt, one can reduce equation (1) to a small number of terms:
(2)
where
. The first term of equation (2) broadly captures the (accounting)
contribution of the real interest rate; the second term captures the effect arising from real
GDP growth; the third term captures the impact of exchange rate movements (through
valuation effects on foreign currency-denominated debt); and the last term reflects the
contribution of the primary balance.
Taking into account the share of debt falling due in the current period (
and subsequent
periods
, we can model the dynamics of the average interest rate as a function of
marginal interest rates:
(3)
Assume the following pass-through structure from (global) risk-free interest rates (
and
sovereign spreads (
into domestic interest rates (
. That is,
. Assume
20
also that real and nominal exchange rate shocks map one-to-one:
From equations (2) and (3), this set of (relatively innocuous) assumptions and from the fact
that
, one can show that dynamics of the public debt-to-GDP ratio is governed
by the behavior of only four (endogenous) domestic variables:
.
Furthermore, one can model the primary balance in a simple fashion by decomposing it into
commodity revenues, non-commodity revenues, and expenditures (all in percent of GDP):
20
This implies that both and
(international inflation) are invariant across the scenarios under
consideration, so that movements in the real effective exchange rate mirror those of the nominal exchange rate.
13
(4)
Subsequently, commodity revenues can be modeled as a function of the corresponding
commodity prices:
(5)
where
(
) are commodity-related revenues and
(
commodity prices under a specific scenario (under the baseline).
) are world
Finally, a constant non-commodity revenue-to-GDP ratio is assumed (i.e., an elasticity equal
to one), such that:
. Then, the dynamics of the public debt ratio is simply given by
four endogenous domestic variables
and a set of exogenous global variables.
External Debt Dynamics
Similarly, to derive the set of variables that determine the path of the external debt-to-GDP
ratio, one can start from the law of motion of external debt:
(6)
where
is the nominal stock of total external debt (expressed in local currency);
(
is the stock of foreign (local) currency-denominated debt;
(
is the average
interest rate on foreign (local) currency-denominated debt;
is the current account
balance excluding interest payments; and
are the non-debt-creating flows (FDI and
equity portfolio).
Then, defining
and
external debt in terms of a small set of factors:
, we can derive the path of
(7)
where
. The first term reflects the contribution of interest payments; the
second term captures the contribution of real GDP growth; the third component measures the
valuation effect arising from movements in the real exchange rate; and the last two terms
reflect the contributions of the current account balance (excluding interest payments) and
non-debt financing flows respectively.
Modeling the non-interest current account as
(where tbt is the trade
balance in period t) and using our previous assumption on the behavior of the real exchange
14
rate (
, the external debt dynamics can be fully characterized by the path
of a set of few domestic variables:
.21
Treating
as exogenous (as we are primarily interested in externally-triggered shocks),
and putting together the systems of equations derived for public and external debt, one can
show that both debt ratios are ultimately driven by five domestic variables,
, and a set of exogenous global variables. The next section discusses how
to estimate the impact of external variables on the first four variables in this set, while the
behavior of the last variable (exp) is evaluated under different policy rules.
B. Conditional Forecasting of Key Domestic Variables: a VAR approach
We estimate country-specific VAR models in order to quantify the sensitivity of the variables
(specified above) that characterize debt dynamics to external conditions. Specifically, the
VARs are used to obtain forecasts of these domestic variables, conditional on a set of
assumed global variables (global scenarios). A key feature of our framework is that primary
balances and debt levels are included in the VAR in order to allow feedback effects from
these variables to the other domestic variables that determine debt dynamics.
Each (reduced form) country-specific VAR model can be written as:
(8)
where
is a vector of endogenous variables and
is a vector of exogenous variables. The vector
includes real GDP growth ( ), the change in the trade balance in percent of GDP (dTBt), and
the (log difference of) the real effective exchange rate (
)).22 The vector , in turn,
includes global real GDP growth (
, the S&P 500 Chicago Board Options Exchange
Market Volatility Index (vix) as a proxy for international financial conditions,23 the (log
differences of) agriculture, energy, and metals prices (
and
respectively),24 the
21
We focus on the trade balance, rather than the non-interest current account, as the former is if the main driver
of the latter and is likely to have more stable relationships with the other key endogenous variables (real
exchange rate, real GDP growth, etc).
22
In the case of countries with a significant fraction of debt denominated in foreign currency (e.g., Bolivia,
Ecuador, Paraguay, Peru, and Uruguay), the use of the real effective exchange rate could result in some
underestimation of potential valuation effects. At the same time, while the bilateral exchange rate vis-à-vis the
U.S. dollar would better capture these effects, their inclusion would significantly complicate the VAR
specification.
23
The VIX index has recently been used as a measure of global uncertainty or financial stress. Bloom (2009),
for instance, shows that this volatility index is highly correlated with measures of micro and macro-level
uncertainty, including from financial variables. More recently, IMF (2012), Adler and Tovar (2012), and
Carrière-Swallow and Céspedes (2011) also used the VIX to measure global uncertainty shocks.
24
International commodity prices are measured in real terms and stripped of exchange rate effects, as in Adler
and Sosa (2011).
15
primary balance, in percent of GDP (pb), and the debt-to-GDP ratio (dp). B(L) and H(L) are
lag polynomial matrices, which include up to four lags.25
The VAR models are estimated using quarterly data from 1990:Q1 through 2012:Q1. The
data sources are primarily the IMF‘s International Financial Statistics (IFS) and World
Economic Outlook (WEO), and Haver Analytics.
It is worth noting that since our main interest resides in obtaining conditional forecasts and
not standard VAR tools such as impulse response functions and variance decompositions,
there is no need for identification restrictions to recover the structural parameters of the
model. Similarly, as our interest is on the conditional forecasting performance of the model
during bad external scenarios, specifications are selected based on their out-of-sample
forecast power during the Lehman event (Figure A5 in the Annex). 26
Unlike that of other papers in the literature, our approach does not entail estimating a fiscal
reaction function, (i.e., there is no equation for the primary balance). This is deliberate, as our
objective is not to obtain alternative debt paths under the assumption that fiscal responses to
the negative shocks mirror those of the past—which may have been constrained (or suboptimal) in many cases—but rather under broadly unconstrained (either neutral or
countercyclical).27 This does not mean that the VAR does not control for the fiscal stance but
instead that the primary balance is treated as exogenous for the purpose of estimation only.
For projections, the primary balance under alternative scenarios is constructed as follows:
revenues are projected based on the forecast for output (conditional on the exogenous path of
the foreign variables) and on standard assumptions about the output elasticity of noncommodity revenues. Commodity-related revenues, in turn, are projected based on the
exogenously determined path of the relevant commodity prices. On the expenditure side, we
consider alternative responses—both neutral and countercyclical (explained in detail later)—
to the negative shock. This approach allows us to better assess the impact of different
components of the primary balance (commodity revenues, revenues linked to economic
activity, and expenditure). Finally, as stated before, the primary balance enters the growth
equation, so our approach incorporates the feedback effects of different fiscal responses on
output.
25
As the global variables included in vector z are exogenous to the model, this approach does not allow to
capture correlations among shocks to these variables. However, the assumptions about the path of the global
variables under each scenario, discussed in the next section, are based on broad patterns observed in previous
episodes of external shocks.
26
27
Table A1 in the Annex presents the estimation output of the VARs.
Whether past fiscal policies were socially optimal or not is still a matter of debate. While there is a vast
literature trying to explain the sub-optimality of procyclical policies with political economy and capital market
frictions, (e.g., Talvi and Vegh, 2005; or Tornell and Lane, 1999) some authors have recently argued that
procyclical responses were optimal in the context of countercyclical sovereign spreads (e.g. Cuadra et al., 2010;
and Hatchondo et al., 2012).
16
C. Sovereign Spreads Module
A sovereign spread equation—one of the variables that determine debt dynamics—is
estimated separately since data availability is significantly more limited (starting only after
1998, and varying by country)28 than in the case of other variables included in the model. The
spread equation includes key macroeconomic fundamentals and exogenous global variables:
(9)
where
) is a vector of potential
predetermined and exogenous variables, which are expected to have similar impact across
countries, and
is a vector of predetermined and exogenous variables
with different effects across countries. We consider three different estimation methods: OLS
(without constant), panel with fixed effects and panel with random effects.
Of the country fundamentals considered only the level of public debt, international reserves
and the real exchange rate appear to have a statistically significant role. Of the exogenous
variables considered, only the VIX produces statistically significant and robust results, with
important differences across idiosyncratic coefficients. Surprisingly, commodity prices do
not appear to be important, perhaps because of their close correlation with the VIX and the
fact that the real exchange rate captures much of the impact of changes in trade prices.
As before, our interest resides primarily in the forecast properties of the model, especially
during bad external scenarios. Thus, we choose a specification that displays good forecasting
performance both for crisis periods as well as subsequent normal times. We do this by
evaluating the out-of-sample forecasting accuracy of the different specifications and
estimation methods for the period 2008:M6 to 2012:M12. Specification 6 with OLS
estimation (Table A2 in the Annex) displays the best properties in this regard.
IV. DEBT DYNAMICS UNDER ALTERNATIVE GLOBAL SCENARIOS
A. Scenarios
We first focus on debt dynamics under ―baseline‖ global assumptions (i.e. IMF‘s World
Economic Outlook latest projections).29 Then, we study how debt sustainability in the region
would change under four alternative (adverse) global scenarios, each defined by exogenously
determined paths for the exogenous variables. We explore two scenarios of temporary shocks
28
Sufficiently long series of EMBI spreads are not available for Bolivia and Paraguay. In these cases, sovereign
spreads are modeled using the average coefficients of the other countries of the region.
29
The analysis leaves aside any issue related to possible changes in the (currency or maturity) composition of
public and external debt following a shock, as these would require a much stronger set of behavioral
assumptions.
17
and two others where shocks have more permanent effects. A brief characterization of each
scenario is as follows:30
Scenario 1: Temporary Financial Shock
This scenario entails a temporary ‗pure‘ financial shock, reflected in a spike of the VIX in
2013 of similar magnitude than the one observed after the Lehman event, with the VIX
returning to baseline levels in 2014. Real variables, such as global growth and commodity
prices are assumed to remain unchanged at baseline levels. While the latter is a strong
assumption, it is meant to allow the scenario to capture the effect of a shock that is mostly
financial.
Scenario 2: Temporary Real Shock
This scenario assumes a temporary global recession, with lower growth and commodity
prices during 2013-14, returning to the baseline path afterwards. This scenario can be
characterized as a backdrop where global uncertainties remain somewhat elevated for some
time—leading to a global economic slowdown, but no crisis—and are eventually resolved.
Scenario 3: A Protracted Global Slowdown
This scenario entails a relatively high level of uncertainty (as reflected by current levels of
the VIX), lower commodity prices and lower global growth (all relative to the baseline). The
scenario does not assume abrupt changes, but rather protracted weakness in real global
variables.
Scenario 4: A Tail Event
In contrast to scenario 3, this is an extreme event meant to study the implications of a crisis
with an impact on global variables (VIX, global GDP growth, and commodity prices) of
magnitudes similar to those observed after the Lehman event. Unlike that episode—which
displayed a quick rebound of commodity prices, and, to a lesser extent, global growth—this
scenario assumes that a new Lehman-like event would have more protracted effects on the
global economy, as fiscal and monetary space in advanced economies is today much more
limited than in 2008.
For each of these scenarios, a path of global exogenous variables is assumed (Table 1 and
Figure 6). These variables include: global growth, the VIX index, the 10-year U.S. T-bill
interest rate, commodity prices (food, energy and metals). Some general assumptions on the
30
A detailed description and the path of external variables, both under the baseline and the alternative scenarios,
are presented in Table 1 and Figure 6. It is worth noting that the analysis does not consider adverse scenarios
that are country-specific in nature. For example, shocks stemming from large neighbors (e.g., Brazil) could be
an additional relevant shock, not studied here, for several Mercosur members (Argentina, Uruguay, and
Paraguay—see Adler and Sosa, 2012).
18
extent of non-debt creating capital inflows and on reserve accumulation are also made in
order to fully specify the set of exogenous variables.
Table 1. Key Global Assumptions under Alternative Scenarios
Scenarios
Global Assumptions
2
3
Protracted
Global
Tail
Recession 2
2013 : BL-1.5%
2014: BL-0.5%
2015-17: BL
S lowdown 3
Event 4
BL-1%
2013: Lehman-like
2014-17: BL-1%
2013 : Lehman-like
2014-17: = BL
BL
BL + 4 pts
2013 : Lehman-like
2014-17: BL+2pts
2013 : BL-100bps
2014-17: BL
√
BL - 50bps
2013-14 : BL-100bps
2015-17: BL-50bps
Financial
Global
2013-17 avg.
S hock 1
3.6
BL
17
300
G8+China GDP Growth
(percent)
VIX
(points)
10-year US Treasury
Interest Rate (basis points)
Commodity
Prices
1
Baseline
(BL)
5
2013 : BL-10%7
2014-17: BL
2013 : BL-25%7
2014-17: BL
Food
-10
Energy
-8
5
√
Metals
-8 5
√
2013 : BL-20%
2014-17: BL
√
BL
Non-debt flows
BL
by country
6
BL-7%
BL-15%
7
4
2013 : BL-15% 8
2014-17: BL-5%
2013 : BL-45% 8
2014-17: BL-10%
8
BL-15%
BL* 0.7
2013 : BL-35%
2014-17: BL-10%
2013 : BL+2008-09
change
2014-17: BL*0.8
1/ Te m po ra ry fina nc ia l s ho c k a ffe c ting 2013 o nly. F ina nc ia l va ria ble s re turn to pro je c te d pa th unde r the ba s e line in 2014.
2/ Te m po ra ry re a l s ho c k (c o m m o dity pric e s a nd wo rld gro wth) in 2013-14. Va ria ble s re turn to pro je c te d pa th unde r the ba s e line in 2015.
3/ Glo ba l s lo wdo wn o ve r the who le fo re c a s t ho rizo n.
4/ Le hm a n-like e ve nt in 2013-14, with pro tra c te d im pa c t o n glo ba l gro wth, c o m m o dity pric e s a nd the VIX.
5/ R e la tive to 2012 le ve l.
6/ As pro je c te d by c o untry de s ks fo r e a c h c o untry.
7/ R e po rte d ga p vis -à -vis ba s e line is re a c he d by e nd-2013. P ric e s re c o ve r gra dua lly a fte rwa rds to re a c h ba s e line by e nd-2014.
8/ R e po rte d ga p vis -à -vis ba s e line is re a c he d by 2013-Q2. P ric e s re c o ve r gra dua lly a fte rwa rds to re a c h ne w pa th by e nd-2014.
Figure 6. Global Variables under Alternative Scenarios, 2003-17
Baseline
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Commodity Prices
(Index, in real terms)
Food
Energy
Metals
140
140
140
140
140
120
120
120
120
120
100
100
100
100
100
80
80
80
80
80
60
60
60
60
60
40
40
40
2012 2014 2016
2003 2005 2007 2009 2011 2013 2015 2017
40
2012 2014 2016
40
2012 2014 2016
2012 2014 2016
Growth and Financial Variables
(percent and points)
US 10 year rate
G8+China Growth
VIX (rhs)
7
70 7
70 7
70 7
70 7
70
5
60 5
60 5
60 5
60 5
60
3
50 3
50 3
50 3
50 3
50
1
40 1
40 1
40 1
40 1
40
-1
30 -1
30 -1
30 -1
30 -1
30
-3
20 -3
20 -3
20 -3
20 -3
20
-5
10 -5
10 -5
10 -5
10 -5
10
-7
0 -7
0
0
0 -7
2003 2005 2007 2009 2011 2013 2015 2017
2012 2014 2016
-7
2012 2014 2016
-7
2012 2014 2016
0
2012 2014 2016
19
The VAR model (together with the spread equation) and the debt motion equations capture
the key linkages between domestic and external variables. To fully determine the dynamics
of debt ratios, however, a few assumptions on domestic policy are also necessary, as noted in
section III. These include: (i) the output elasticity of non-commodity fiscal revenue; (ii) real
public expenditure policy; and (iii) the extent of reserve accumulation31. Table 2 details these
key assumptions under each of the four alternative scenarios.
The assumptions on real expenditure growth deserve special attention as they determine the
degree of cyclicality of the fiscal stance, given the endogeneity of the other components of
the primary balance.32 For each scenario we study three different expenditure rules:
Baseline fiscal policies. In this case, real expenditure growth behaves as in the baseline
projection, regardless of the scenario under consideration. The idea is to focus on the ‗pure‘
impact of changing external conditions, maintaining policies unchanged.
Neutral fiscal policy. Fiscal policy, however, is likely to react to negative external shocks.
Thus, we consider an expenditure rule that implies a broadly neutral stance—i.e., expenditure
growing at potential GDP growth rates under each of the four scenarios; thus only allowing
for automatic stabilizers to operate.33
Counter-cyclical fiscal policy. Finally, we consider the possibility of counter-cyclical policies
beyond the effect of automatic stabilizers. To make policies comparable across countries, we
specify a simple rule such that, in each scenario, expenditure grows above potential GDP
growth rate by a margin that is proportional (one-to-one) to the gap between actual GDP
growth and potential GDP growth.
Exploring these alternative rules allows us to assess the extent to which, under each of the
negative external scenarios, fiscal buffers are large enough to (i) respond by deploying
countercyclical fiscal policy, (ii) just enough to allow automatic stabilizers to work, or (iii)
there is no fiscal space for stimulus and a fiscal tightening is necessary to ensure debt
sustainability. Our assessment focuses on sustainability, leaving aside risks related to
possible financing (i.e., liquidity) shocks. It is important to stress that, for countries with
well-established fiscal rules (e.g. Brazil, Chile, Mexico), the reported dynamics under the
different scenarios should be interpreted as an illustration of how fiscal variables would
31
The assumption about accumulation of reserves is needed to determine the path of sovereign spreads.
32
Commodity revenues are assumed to vary primarily with commodity prices, while non-commodity revenues
vary with nominal GDP, as the elasticity of non-commodity revenues to output is assumed to equal one. While
this elasticity may deviate from one at times—including because of possible revenue measures—the evidence
suggests that, over the last decade, on average it has indeed been close to one (Annex Figure A2).
33
An exception to this rule is introduced in cases where IMF baseline projections for 2013-14 assume
expenditure growth above potential GDP growth. In these cases, we assume expenditure growth equals the
baseline projections, to avoid a situation where fiscal policy is more expansionary in the baseline than in the
negative scenario. This exception also recognizes the fact that IMF country desks (and their projections) may
have specific information about expenditure plans already in the pipeline.
20
behave in the event of a temporary deviation from the existing rules and, as such, of the
magnitude of the fiscal adjustments that would be required to return to the target under the
corresponding rule after the shock.
Table 2. Key Domestic Policy Assumptions under Alternative Scenarios
S cenarios
1
Policy Assumptions
Baseline
(BL)
2013-17 avg.
Non-Commodity Revenue
Elasticity to Output
BL
Real
Neutral
Expenditure
Growth
Counter(percent)
cyclical
Reserve Accumulation
(percent of GDP)
2
Financial
Global
3
Protracted
Global
S hock 1
Recession 2
S lowdown 3
BL5
5
BL
…
…
5
BL
4
Tail Event 4
1
BL
2013-14: max{scenario potential GDP growth; BL)
2015-17: scenario potential GDP growth
2013-14: Neutral + (-1) * (current year growth - scenario
potential GDP growth)
2015-17: scenario potential GDP growth
2013 : -2.0
BL
BL
0
2014-17 : 0.0
1/ Te m po ra ry fina nc ia l s ho c k a ffe c ting 2013 o nly. F ina nc ia l va ria ble s re turn to pro je c te d pa th unde r the ba s e line in 2014.
2/ Te m po ra ry re a l s ho c k (c o m m o dity pric e s a nd wo rld gro wth) in 2013-14. Va ria ble s re turn to pro je c te d pa th unde r the ba s e line in
3/ Glo ba l s lo wdo wn o ve r the who le fo re c a s t ho rizo n.
4/ Le hm a n-like e ve nt in 2013-14, with pro tra c te d im pa c t o n glo ba l gro wth, c o m m o dity pric e s a nd VIX.
5/ As pro je c te d by c o untry de s ks fo r e a c h c o untry.
B. Key Results
Latin America’s overall picture
WEO Baseline projections
We first examine the projected trajectories of public and external debt under the baseline,
with the path of global variables as in the Fall 2012 IMF‘s World Economic Outlook (WEO).
The dynamics under the baseline sheds light on the region‘s debt sustainability in the absence
of unexpected foreign shocks. It also plays a role in assessing debt sustainability under the
alternative scenarios, as projected debt ratios are computed by adding to the WEO baseline
the estimated impact of changes in external conditions. The latter is computed as the
difference between the debt projection under each VAR scenario forecast and the projection
under the VAR baseline forecast.34 By focusing on the ‗marginal‘ impact of changes in global
conditions on WEO‘s baseline projection, this approach ensures that country-specific
information embedded in the latter—such as revenue measures or investment plans already in
the pipeline—is incorporated in the scenario projections.
(10)
Under the baseline both public and external debt ratios are, on average, expected to decline
only slightly (less than 2 percentage points of GDP) through 2017, continuing with the trend
34
VAR-estimated baseline projections are those resulting from the use of the VAR model under WEO baseline
global assumptions. These may differ from the (IMF country desks‘) WEO baseline projections.
21
observed since 2009 (Figure 7). In the case of public debt, commodity-related revenues will
continue to be a major factor pushing debt down, although they will be mostly offset by the
continuation of non-commodity primary deficits. With (non-interest) current accounts
broadly balanced on average, Latin America‘s external debt dynamics will be largely
determined by the offsetting forces of still large non-debt-creating capital inflows (FDI and
equity portfolio flows) and further foreign asset accumulation.
Alternative downside scenarios
Next, we analyze the results across different scenarios, considering baseline policies—to
identify the ‗pure‘ impact of changes in external conditions, maintaining expenditure policy
unchanged—as well as policies that entail a neutral stance or a counter-cyclical fiscal stance.
(i)
Baseline policies
The results suggest that the impact of temporary negative external shocks (either financial or
real, as depicted by scenarios 1 and 2) both on public and external debt would be, in general,
limited (Figure 7). A temporary financial shock (scenario 1) would lead to an increase of
public debt of about 7 percentage points of GDP by 2017 (relative to the baseline), with most
of the impact arising from the deterioration in economic activity and the associated
weakening of primary balances, reinforced by the effect of the real depreciation in countries
with foreign-currency denominated debt. A temporary real shock (scenario 2) would have a
much more muted impact on public debt. Transitory shocks would not have visible effects on
external debt dynamics. In the case of a financial shock (scenario 1) the effects of the
associated real depreciation and rise in external interest rates (due to an increase in spreads)
would be non-negligible, but they would be fully offset by the projected current account
adjustment that would accompany this shock. Interestingly, the sharp increase in sovereign
spreads under scenario 1 (Figure 7, lower panel) would induce only a mild effect on average
interest rates—and thus on debt dynamics—as a result of the relatively low levels of shortterm debt.
The impact of more persistent shocks to foreign variables (scenarios 3 and 4) on public debt
trajectories would be, however, significantly higher. Under scenario 4, public debt would
increase, on average, by 20 percentage points of GDP (to around 55 percent) by 2017, due to
the combination of a sharp decline in output and the associated weakening of non-commodity
primary balances, considerably lower commodity revenues, and a non-negligible effect
stemming from the real depreciation. External debt, on the other hand, would remain at
manageable levels under these scenarios, with increases of only 5-6 percentage points of
GDP by 2017—mainly reflecting lower growth, the effects of real depreciations, and a likely
drop in non-debt capital inflows, offset partially by projected current account improvements.
(ii)
Active (Neutral and Countercyclical) Policies
If authorities were to respond to the negative shocks of scenarios 1 and 2 by implementing
either neutral or countercyclical policies (as defined earlier) the impact on public debt levels
would be more pronounced, with stocks reaching about 46-51 percent and 41-44 percent of
GDP by 2017, respectively (Figure 8, upper panel). While representing a sizeable impact,
these levels do not appear to be particularly worrisome, especially given that primary
balances would deteriorate only marginally and would not require to be adjusted significantly
22
to keep public debt on a sustainable path. These scenarios would not entail a significant
impact on external debt paths even under active policies.
Interestingly, under scenario 3, the debt trajectory associated with a counter-cyclical fiscal
policy response would be very similar to the one resulting from a policy reaction that is
essentially neutral. This reflects the fact that this scenario would imply not only a decline in
actual GDP growth but also in potential growth, and thus the output gap—measured relative
to the new potential—would be rather small (Figure 7, lower panel), and so would be the
scope for expansionary fiscal policy. It is also worth highlighting that, if authorities failed to
recognize that under this scenario the new potential growth rate is lower than previously
estimated, what may be intended as a neutral stance would, in fact, be stimulative and would
lead to a worsening of the primary balance and thus public debt dynamics.
Under scenario 4, there would be more scope for expansionary countercyclical policies, as
output would fall significantly below (the new lower) potential levels. Both a neutral policy
response—allowing automatic stabilizers to operate—and a countercyclical one would lead
to substantial increases in public debt (of more than 20 and 30 percentage points of GDP by
2017, relative to the baseline, respectively). At those levels (65 percent of GDP in the case of
countercyclical policies), concerns about fiscal sustainability may emerge, especially in
countries where the required adjustment in the primary balance to stabilize debt ratios would
be large.
Finally, external debt would increase to around 35 percent of GDP in the face of more
persistent negative external shocks (scenarios 3 and 4), irrespective of policies. As discussed
earlier, this partly reflects that current accounts in Latin America tend to improve after
negative external (financial) shocks.
23
Figure 7. Latin America. Factors Driving Public and External Debt Dynamics under Alternative Global Scenarios, 2003 -17 1/
(contributions to change in debt-to-GDP ratio, in percent of GDP)
Public Debt
Non-commodity PB (rhs)
Other (rhs)
Real interest rate (rhs)
Commodity Revenue (rhs)
WEO Baseline 2/
55
40
20
62.3
55
20
10
Scen
35.1
34.2
35
35
0
0
34.2
25
Baseline
15
25
-20
5
-5
2006
2009
2012
2012
2015
46
54
55
15
10 46
10
5
5
20
15
45
10
37
36
36
0
0
5
35
0
-5
-5
-5
-5
-10 26
-10 26
-10 25
-10
-15
-15
-15
-15
-20 16
15
-40
2003
Scenario 4 3/
20
15
46
5
45
Scenario 3 3/
20
15
41
45
Real Exchange Rate (rhs)
Scenario 2 3/
Scenario 1 3/
75
65
Real GDP growth (rhs)
Public Debt (lhs)
-20 15
-20 16
2012
2015
2015
2012
-20
2012
2015
2015
External Debt
Current account (exc. interests, rhs)
Other (rhs)
Interest rate (rhs)
Non-debt flows (rhs)
Real GDP growth (rhs)
External debt
Scenario 1 3/
WEO Baseline 2/
59
Real Exchange Rate (rhs)
Scenario 2 3/
20
Scenario 3 3/
20
49
20
49
10
39
10
39
20
Scenario 4 3/
49
10
39
0
29
20
49
10
39
0
29
Scen
28.5
27.5
29
32.8
33.1
39
27.3
0
27.8
29
0
29
27.5
27.5
10
0
27.5
27.5
19
-10
19
-20
9
Baseline
-10
19
-20
9
-10 19
-10
19
-20
9
-10
9
-1
2003
2006
2009
2012
2015
2012
-20
2012
2015
9
2012
2015
2015
-20
2012
2015
Key Domestic Variables
(deviations from baseline)
VAR Scenario 1
Real GDP 4/
(Index)
Real GDP Growth
(percent)
2
VAR Scenario 2
VAR Scenario 3
Current Account
(exc ints., % GDP)
Real Exchange
Rate 4/ (Index)
5
4
1
0
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
3
1
1
2
0
0
-3
-2
-1
-4
-7
0
1
-1
-2
-4
-6
2012
-15
2017 2012
0
-8
-11
-3
-3
-12
2017
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
Sources: IMF International Financial Statistics and authors' estimations.
1/ SImple average for Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
4/ Deviation in percent of baseline.
2017
24
Figure 8. Latin America. Public and External Debt under Alternative Scenarios and Policies, 2012-17 1/
(In percent of GDP, simple averages)
WEO Baseline
Scen w/Neutral Policy
Scen w/Baseline Policies
Scen w/Counter-cyclical Policy
Public Debt
70
Scenario 1
70
Scenario 2
Scenario 3
60
60
70
60
60
51.6
50
50
40
41.5
35.1
40
37.0
34.2
34.2
30
2012
2014
2014
57.1
54.2
45.8
40
40
35.1
35.1
2016
34.2
34.2
30
30
2012
2016
66.2
50
47.8
44.8
42.1
35.1
30
49.1
50
46.5
Scenario 4
70
2012
2014
2012
2016
2014
2016
External Debt
40
Scenario 1
40
Scenario 2
Scenario 3
Scenario 4
40
40
34.5
33.8
33.7
30
28.4
28.0
27.5
28.5
30
28.8
28.5
27.8
28.5
20
2012
2014
2016
30
30
28.5
28.5
27.5
27.5
27.5
27.3
20
33.5
32.8
33.1
20
20
2012
2014
2016
2012
2014
2016
2012
2014
2016
Source: authors' estimations.
Country-specific results
Averages for the region, however, mask some important differences across countries.35
WEO Baseline projections
Under baseline external conditions, public debt ratios will continue to decline moderately in
most countries (Brazil and Uruguay, starting from higher initial levels, would experience the
largest decreases), with primary balance gaps generally improving. A notable exception is
Venezuela, where debt is projected to increase by 30 percentage points of GDP, reaching 80
percent of GDP, by 2017.36 External debt, in turn, is projected to remain broadly stable in
most countries under the baseline external scenario.
Alternative downside scenarios
Most countries in the region should be in a position to undertake an expansionary
countercyclical policy response in the event of temporary shocks (scenarios 1 and 2), without
35
36
See Figures 9 and 10, and Figures A6-A16 in the Annex.
In a few countries (mainly Argentina, Chile, Ecuador, Mexico and Venezuela), this baseline already projects
fiscal consolidation to varying degrees. If such projections did not materialize, debt dynamics would worsen
both under this baseline and the alternative scenarios (by construction).
25
raising debt sustainability concerns (i.e., high debt and primary gap levels). An exception
would be Venezuela, which would likely have limited or no scope for countercyclical policy,
reflecting the combination of relatively weak initial positions and high sensitivity to these
shocks (that could rapidly lead to large deficits).
In case of external shocks with more protracted effects (scenarios 3 and 4), countries can be
classified into three different groups based on the extent of fiscal buffers to implement either
neutral or countercyclical fiscal policy responses (Figure 9):

First, a group of countries (Argentina and Venezuela) that would likely need to undertake
sizeable fiscal consolidation in the face of adverse shocks, including—although to a
lesser extent—moderate ones, to keep public debt on a sustainable path. 37

Second, a group (including Brazil, Mexico, Uruguay, and—to a lesser extent—Ecuador),
which public debt dynamics would be less vulnerable to moderate shocks, although still
significantly sensitive to tail events. In particular:

This group should be in a position to deal with a moderate deterioration of the
external environment (scenario 3), although debt ratios could reach levels (ranging
from 55 to 65 percent of GDP) that—while manageable—would be relatively high for
emerging market standards, and could make these economies vulnerable to possible
subsequent adverse shocks.38

Under a more severe event (scenario 4), scope for counter-cyclical policy, and to
some extent even for neutral policies, would be limited without raising concerns
about debt sustainability, as indicated by the sharp deterioration in debt levels and/or
primary balance gaps.39

In countries with well-established fiscal rules (Brazil, Mexico), adherence to the rule
following a temporary deviation at the time of the adverse shock would, of course,
ensure that public debt remains on a sustainable path. In some cases, however,
37
In these two cases, results should be interpreted with caution, as important structural changes in the last
decade may have affected the econometric results regarding the impact of external shocks on domestic
variables. One the one hand, these countries have moved towards less international financial integration,
possible making them less vulnerable to global financial shocks. At the same time, their dependence on
commodity exports has increased, thus making them more vulnerable to commodity price shocks. While it is
difficult to point to a specific direction of the possible estimation bias, evidence of the impact of the 2008-09
crisis on domestic output suggests that these economies are still highly sensitive to external shocks.
38
Furthermore, in the cases of Ecuador and Mexico, the baseline already assumes a path of fiscal consolidation
(with public expenditure growing below potential GDP growth). If such consolidation did not take place, debt
dynamics would worsen both under the baseline and the alternative scenarios.
39
For instance, countercyclical responses would lead to a sizeable jump in debt ratios to substantially high
levels in Brazil, a sharp deterioration of the primary balance gap in Ecuador, or a combination of both in
Mexico and Uruguay.
26
returning to the fiscal targets under the rule could entail significant fiscal
consolidation.40

Finally, a group of countries (Bolivia, Chile, Colombia, Paraguay, and Peru) that, to
varying degrees, appear to be in a position to weather a marked worsening of external
conditions—even undertaking countercyclical policies—without jeopardizing fiscal
solvency. Peru appears to exhibit the strongest position, even under the described extreme
circumstances. While in Chile and Paraguay, under scenario 4 and assuming
countercyclical policies, both the primary balance gap and debt ratios could increase
significantly, debt would still remain at relatively moderate levels.41 Colombia, with debt
levels reaching over 50 percent of GDP and the primary balance gap -4 percent of GDP,
appears to exhibit a somewhat less solid fiscal position, though those figures should not
raise concerns about fiscal solvency.
40
As indicated before, the focus of this paper is on the sustainability impact of external shocks, leaving aside
the desirability of larger buffers to guard against possible idiosyncratic shocks. The latter could be of particular
importance in resource-rich economies (e.g., Bolivia and Ecuador). For a further discussion of these issues, see
IMF (2012b).
41
The fiscal position in Chile is further strengthened by the substantial stock of foreign assets in sovereign
funds (about 11 percent of GDP in 2012).
27
Scenario 3
Public Debt
Figure 9. Key Fiscal Indicators under Different Scenarios, 2012-17 1/
(percent of GDP)
Scenario 4
Public Debt
145.0
80
140 80
Counter-cyclical Policy
60
140
126.9
118.6
120
100
120
105.8
Neutral Policy
116.4
60
100
81.9
68.3
63.6
40
80
80
40
60
20
51.3
40
45.2
51.3
0
0
BRA URY MEX ECU
BOL COL
CHL
PER
20
RH Scale
0
PAR
0
VEN ARG URY
Primary Balance
BRA MEX ECU COL
BOL
CHL
PAR
PER
Primary Balance
5
-1.5
0
40
45.2
20
20
RH Scale
VEN ARG
60
5
5
0
0
-5
-5
5
-1.5
0
-2.6
-5
-5.4
-3.8
-4.4
-5.4
-5
-5.1
-6.9
-10
-10 -10
-12.6
-13.3
-10
-9.5
-14.1
-15
-15 -15
-15
-19.4
-20
-20 -20
VEN ARG
BRA URY MEX ECU
BOL COL
CHL
PER
PAR
-20
VEN ARG URY
Primary Balance Gap 2/
BRA MEX ECU COL
BOL
CHL
PAR
PER
Primary Balance Gap 2/
5
5
5
5
2.8
0
0.0
0
0
-5
-5
0
-3.5
-4.4
-5
-7.3
-7.9
-5.8
-5.6
-5
-7.2
-7.6
-6.0
-10
-10 -10
-8.6
-11.2
-10
-13.5
-15
-15 -15
VEN ARG
BRA URY MEX ECU
BOL COL
CHL
PER
PAR
-15
VEN ARG URY
BRA MEX ECU COL
BOL
CHL
PAR
PER
1/ Series indicate the path of public debt and primary balance gap from 2012 to 2017 for each country. Solid lines denote path under neutral policies.
Dotted lines corresponds to counter-cyclical policies.
2/ Primary balance at year t minus debt-stabilizing primary balance at 2017, as defined in IMF DSA template.
On the external front, even under the more extreme scenarios (3 and 4) countries in the
region would be in a position to maintain external sustainability under check (Figure 10).42
In fact, under both scenarios (and even assuming active policy responses) debt levels would
remain moderate, and current account balance gaps would be either closed or positive. A key
factor driving this result is—as noted earlier—the fact that current accounts tend to improve
in the face of large negative external shocks (especially financial ones).
42
An exception is Venezuela, where external sustainability concerns could be raised in case of a tail event.
28
Scenario 3
External Debt
Figure 10. Key External Indicators under Different Scenarios, 2012-17 1/
(percent of GDP)
Scenario 4
External Debt
80
80
60
60
40
40
20
20
0
0
VEN
CHL
ARG
URY
BOL
MEX
PER
ECU
COL
PAR
VEN
BRA
CHL
BOL
ARG
URY
PER
MEX
COL
PAR
ECU
BRA
PAR
ECU
BRA
Non-Interest Current Account Balance
Non-Interest Current Account Balance
8
8
3
3
-2
-2
-7
-7
VEN
CHL
ARG
URY
BOL
MEX
PER
ECU
COL
PAR
BRA
VEN
Non-Interest Current Account Balance Gap 2/
CHL
BOL
ARG
URY
PER
MEX
COL
Non-Interest Current Account Balance Gap 2/
10
10
5
5
0
0
-5
-5
-10
VEN
CHL
ARG
URY
BOL
MEX
PER
ECU
COL
PAR
BRA
VEN
CHL
BOL
ARG
URY
PER
MEX
COL
PAR
ECU
BRA
1/ Series indicate the path of external debt and non-interest current account balance gap from 2012 to 2017 for each country. Solid lines denote path
under neutral policies. Dotted lines corresponds to counter-cyclical policies.
2/ Non-interest current account (NICA) balance at year t minus debt-stabilizing NICA balance at 2017, as defined in the IMF DSA template.
V. CONCLUSIONS
Latin America experienced a sharp improvement in key macroeconomic fundamentals over
the last decade, although these gains were, to some extent, the result of a highly favorable
external environment. With prospects of less favorable conditions going forward, and even
the possibility of a sharp deterioration (in the event of an escalation of the European financial
crisis), the region‘s fundamentals may change drastically. This paper proposes a simple
framework to undertake debt sustainability analysis focusing on the impact of changes in
external variables. Using this framework, we examine how public and external debt
29
sustainability indicators (both in terms of stocks and flows) would look like under alternative
negative external scenarios. The results are used to assess whether current levels of policy
buffers (especially fiscal) in the region are adequate to withstand a deterioration of the global
environment.
The main results indicate that while external sustainability does not appear to be source of
concern for Latin America in general, fiscal space to deal with a protracted deterioration of
the external environment may still be limited in several countries. These results suggest that
the region would benefit from further strengthening buffers, while favorable conditions last,
to be in a position to actively use fiscal policy should the external environment deteriorate
markedly.
There are, however, some important differences across countries and three groups can be
identified according to the degrees of fiscal space to deal with negative external shocks: (i) a
group (Argentina and Venezuela) that would face tight fiscal constraints even in the face of
relatively moderate shocks, likely precluding the deployment of counter-cyclical policy; (ii) a
group (Brazil, Mexico, Uruguay, and—to a lesser extent—Ecuador) that would have some
space to run countercyclical fiscal policy but would benefit from building further space to be
able to respond actively without raising concerns about fiscal sustainability or requiring large
subsequent fiscal consolidations, specially under severe scenarios; and finally (iii) a group
(Bolivia, Chile, Paraguay, Peru, and—to a lesser extent—Colombia) that appears to be today
in a position to weather sizeable shocks with counter-cyclical policies without compromising
debt sustainability.
30
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32
Annex Figure A1. Factors Driving Public Debt Dynamics, 2002-12 1/
(cumulative contributions, percent of GDP)
Primary deficit (rhs)
Real Exchange Rate (rhs)
Real interest rate (rhs)
Other (rhs)
Latin America (average)
Real GDP growth (rhs)
Public Debt
Argentina
126
Bolivia
60
60
225
106
40
86
20
66.2
60
185 165.0
20
119
40
99
145
0
46
-20
105
-60
26
35.1 -40
65
-100
19
6
-60
-140
-1
2005
2008
59
45.2
25
2011
2002
Brazil
2005
2008
80
-20
39
-40
34.8
94
65
-60
-80
2002
2011
Chile
160
0
-20
66
2002
20
79 69.1
2005
2008
2011
Colombia
50
140
120
40
100
80
45
30
25
79.8
74
54
15.2
30
43.9
10
0
5
60
64.1
40
-40
11.4
-10
34
-10
32.2
14
-15
-30
20
0
-80 -35
2002
2005
2008
-50
2011
2002
2005
2008
-6
Mexico
Ecuador
104
-50
2002
2011
2005
2008
2011
Paraguay
50 66
20
65
84
64
10
54.1
-10
24
-30
45
0
25
-20
45.7
46
44
20
44.8
30
0
43.1
5
12.9
-40
18.8
4
-50 26
2002
97
2005
2008
-20
2002
2011
2005
2008
-60
2003
Uruguay
Peru
2006
2009
2012
Venezuela
50
177
77
57
-15
2011
70
117
70
30
137
47.1
107.2
30
77 46.5
30
10
37
-10
46.8
97
-10
37
-10
-50
-4
-50
-90
-44
19.6
17
-30
57
52.3
-3
-50
2003
2006
2009
2012
17
2002
2005
2008
2011
Sources: IMF International Financial Statistics, IMF country desks and authors' calculations.
-90
2002
2005
2008
2011
Annex Figure A2. Components of Primary Balance Dynamics, 1995-2012 1/
(Index, 2003=100 unless otherwise states, in real terms)
Commodity Revenue
Latin America (average)
Non-Comm. Revenue
Primary Expenditure 2/
Argentina
250
200
Real GDP
Real GDP (at potential growth) 3/
Bolivia
350
350
300
300
250
250
200
200
150
150
100
100
50
50
Brazil
250
200
150
100
150
100
50
50
0
0
1995
1998
2001
2004
2007
0
1995
2010
Chile
1998
2001
2004
2007
2010
Colombia
250
250
200
200
0
1995
1998
2001
2004
2007
2010
1995
Ecuador
1998
2001
2004
2007
2010
2001
2004
2007
2010
2001
2004
2007
2010
Mexico
350
250
300
200
250
150
150
100
100
150
200
150
100
100
50
50
50
50
0
0
1995
1998
2001
2004
2007
2010
0
1995
Paraguay
1998
2001
2004
2007
2010
0
1995
Peru
1998
2001
2004
2007
2010
1995
Uruguay
250
250
250
250
200
200
200
200
150
150
150
150
100
100
100
100
50
50
50
50
0
0
1995
1998
2001
2004
2007
2010
0
1995
1998
2001
2004
2007
2010
1998
Venezuela
0
1995
1998
2001
2004
2007
Source: IMF International Financial Statistics and authors' calculations.
1/ Using GDP deflator for all series.Data on commodity-related revenues for Ecuador, Mexico and Venezuela (Chile) are avilable from 2000 (2005).
2/ Expenditure base year equals percent of revenues in that year.
3/ Based on projected growth for 2015-17.
2010
1995
1998
Annex Figure A3. Factors Driving Primary Balance Dynamics, 2002-12 1/
(cumulative contributions, percent of GDP)
Non-Commodity PB
Commodity Revenue
Latin America (average)
Primary deficit (rhs)
Argentina
50
Bolivia
50 50
100
50
70
60
30
30 30
30
10
10 10
10
-10
-10-10
-10
-30
-30-30
-30 -50
30
2002
2005
2008
2002
2011
Brazil
-10
-20
-60
-50 -90
-50-50
-50
20
2005
2008
-100
2002
2011
Chile
2005
2008
2011
Colombia
40
40 50
50 50
50
20
20
30
30 30
30
10
10 10
10
-10
-10 -10
-10
-30
-30 -30
-30
0
0
-20
-20
-40 -50
-40
2002
2005
2008
-50 -50
2002
2011
Ecuador
2005
2008
-50
2011
2002
Mexico
2005
2008
2011
Paraguay
80 30
80
30
70 50
40
40
30
10
10
-10
-10
10
0
0
-10
-30
-40
-40
-50
-90 -70
-80
2002
2005
2008
-80 -30
2002
2011
Peru
2005
2008
-30
2011
2002
Uruguay
2008
2011
Venezuela
80 30
80
2005
30 120
130
80
40
90
40
10
0
10
0
40
50
10
0
-30
-10
-40
-10 -40
-70
-40
-80
-80 -30
-80
2002
2005
2008
2011
-110
-30 -120
2002
2005
2008
2011
Sources: IMF International Financial Statistics, IMF country desks and authors' calculations.
-150
2002
2005
2008
2011
35
Annex Figure A4. Factors Driving External Debt Dynamics, 2002-12 1/
(cumulative contributions, percent of GDP)
182
Real GDP growth (rhs)
Non-debt flows (rhs)
Interest rate (rhs)
CA (exc. ints pmts, rhs)
Other (rhs)
External debt
Latin America (average)
120
Real Exchange Rate (rhs)
Argentina
Bolivia
361
200
142
80
301
140
102
40
241
80
61.9
62
0
22
-40
181
160.9
20
121
28.5
-18
32.2
61
-80
1
-120 -59
-58
2002
2005
2008
2002
2011
Brazil
2005
2008
140
156
100
116
60
76 55.6
-40
36
-100
-4
-160
-44
-220
-84
118
80
198
140
138
80
20
-20
20.7
-60
-100
-140
2002
2011
Chile
122
196
2005
2008
2011
Colombia
80
60
82
40
20
41.7
42
78 58.2
20
18
-40
0
13.5 -20
2
39.2
78
40
38.2
38
0
22.6
-2
-40
-42
-40
-100
-60
-38
-80 -102
2002
2005
2008
2011
-160
2002
Ecuador
2005
2008
100
83
60
114
63
40
94
20
74
80
116
60
40
76 65.7
43
20
0
36
-4
2008
2011
Paraguay
60
40
20
0
54
0
3
-20
34
-20
-17
-40
14
-60
-6
23
-60
2005
53.9
23.0
28.0
27.3 -20
-40
-80
2002
Mexico
156
-42
2011
22.4
-40
-80
-44
-100
2002
2005
2008
-37
2011
2002
Peru
2005
2008
Uruguay
70
99
50
59 49.1
236
140
196
100
2002
2005
2008
2011
100
98
60
20
58 38.2
-20
18
-60
40.4
-60
-100
-140
-100 -102
-70
-44
-140 -142
2008
2011
Sources: IMF International Financial Statistics, IMF country desks and authors' calculations.
-20
-62
-4
2005
20
42.0
-22
-50
2002
180
140
116 96.3
36
2011
138
10
-30
2008
178
60
76
2005
Venezuela
156
-10
-21
218
30
25.3
19
-60
2002
2011
-180
2002
2005
2008
2011
-10
10
0
5
5
0
-5
-5
1
20
0
0
0
-5
-1
-20
-10
-2
-40
10
0
-10
-20
2011q1
20
2011q1
-50
2011q1
2010q3
-40
2010q3
-8
2010q3
-10
2010q1
-20
2010q1
-4
2010q1
-5
2009q3
0
2009q3
0
2009q3
0
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
Trade Balance
(q-o-q change, in percent of GDP)
2009q1
20
2009q1
4
2009q1
5
2008q3
40
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
10
8
2008q3
forecast
2008q3
-6
2011q1
-10
2011q1
-3
2010q3
-5
2010q1
0
2009q3
0
2009q1
3
2010q3
5
2008q3
5
2010q1
40
2011q1
2010q3
2010q1
6
2008q3
Argentina
Observed
2009q3
2
2009q3
Bolivia
Real GDP
(q-o-q percent change)
2009q1
10
2008q3
2009q1
Brazil
10
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
Chile
36
Figure A5. Forecasting Power of VAR Model During the Lehman Event
95% C.I.
REER
(q-o-q change, in percent )
50
0
10
10
20
5
5
10
0
0
0
-5
-5
-10
-10
-10
-20
2011q1
2010q3
2010q1
2009q3
2009q1
1
20
0
0
0
-5
-1
-20
-10
-2
-40
5
20
0
0
0
-5
-5
-20
-10
-10
-40
2011q1
2010q3
10
0
0
-1
-10
-2
-20
2009q3
2010q1
2010q3
2011q1
2009q3
2010q1
2010q3
2011q1
2009q3
2010q1
2010q3
2011q1
2009q3
2010q1
2010q3
2011q1
Trade Balance
(q-o-q change, in percent of GDP)
2009q1
2009q1
2009q1
2009q1
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
1
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
2011q1
2010q3
2010q1
20
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
2011q1
2010q3
5
2010q1
2009q3
2
2008q3
2011q1
2010q3
5
2010q1
40
2009q3
2009q1
Observed
2010q1
40
2009q3
10
2009q1
2008q3
0
2009q3
2
2009q1
10
2008q3
Colombia
Real GDP
(q-o-q percent change)
2009q1
10
2008q3
Ecuador
-5
2008q3
Mexico
5
2008q3
Paraguay
37
Figure A5. Forecasting Power of VAR Model During the Lehman Event (cont.)
forecast
95% C.I.
REER
(q-o-q change, in percent )
-15
2011q1
2010q3
2010q1
10
10
5
5
-10
-5
-10
10
-5
-10
-30
-50
2011q1
0
2011q1
30
2010q3
50
2010q3
-20
2010q1
-5
2010q1
0
2009q3
5
2009q3
5
-10
2009q1
2011q1
2010q3
2010q1
forecast
2009q3
Trade Balance
(q-o-q change, in percent of GDP)
2009q1
-5
2009q1
0
2008q3
5
2008q3
2011q1
2010q3
2010q1
2009q3
5
2008q3
2011q1
0
2010q3
15
2009q1
Observed
2010q1
-5
2009q3
0
2009q3
10
2009q1
-5
2009q1
0
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
10
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
2008q3
Peru
Real GDP
(q-o-q percent change)
2008q3
2011q1
2010q3
2010q1
2009q3
2009q1
-10
2008q3
Uruguay
-10
2008q3
Venezuela
38
Figure A5. Forecasting Power of VAR Model During the Lehman Event (cont.)
95% C.I.
REER
(q-o-q change, in percent )
10
5
0
-5
20
10
0
-10
39
Figures A6-A16
Argentina
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
85
40
85
20
65
75
30
63
Scen
65
20
85
20
65
10
55
45
39.8 0
0
35
-10
39.8
25
25
-20
10
55
42
-20
15
5
5
-40
2003
2006
2009
2012
-30
2012
2015
45
0
35
-10
75
63
20
-20
15
5
-30
2015
78
85
75
30
20
65
10
55
0
35
-10
10
55
45
0
35
-10
25
25
2012
2015
Scenario 4 3/
30
45
25
Baseline
85
65
45.2
45
Scenario 3 3/
30
75
Rea l Excha nge Ra te (rhs)
-20
15
5
-30
2012
-20
15
5
-30
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
52
20
Scenario 2 3/
52
30
15
42
10
52
0
22
-10
29.7 0
34.9
32
-5
-20
2003
2006
2009
2012
12
-30
2012
34.7
34.9
32
0
34.9
33.8
32
0
-10
22
-20
-30 12
-30
2012
2015
10
-10
-20
12
20
10
22
2012
2015
30
42
-10
-20
2015
0
22
Scen
-15
12
32
Scenario 4 3/
52
20
10
33.4
34.9
-10
22
30
42
10
34.9 5
52
20
42
Baseline
32.2
32
Scenario 3 3/
30
20
42
Rea l Excha nge Ra te
-20
12
2015
-30
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
4
VAR Scenario 2
5
VAR Scenario 3
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
7
4
2
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
3
5
1
4
5
0
0
2
0
-1
3
3
-2
-1
-6
-5
1
-11
-4
2012
-15
2017 2012
1/ Deviation in percent of baseline.
0
-4
-3
-21
2017
0
-1
-16
-8
1
-3
-10
-6
2
-2
1
2012
2017
-5
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
40
Bolivia
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
95
95
60
74.1
75
40
75
55
20
55
20
15
95
15
10
34.8
15
5
33
29.4 0
35
Scen
35
0
29.4
15
-20
-5
Baseline
-5
-25
2003
2006
2009
2012
-40
-5
-60
-25
32
35
0
15
75
15
-15
-5
15
20
15
75
44
55
-15
2015
35
0
-5
15
-10
-5
-15
-20 -25
2012
10
5
-10
-5
-20 -25
2012
2015
5
0
-10
-5
95
10
39
35
-5
Scenario 4 3/
20
55
5
-20 -25
2012
2015
95
10
55
-10
-15
Scenario 3 3/
20
75
Rea l Excha nge Ra te (rhs)
-20
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
51
30
51
20
41
Scenario 2 3/
20
10
31
0
21
-10
21
21.3
-9
2003
2006
2009
2012
1
-30
-9
2015
-20
2012
21
21.3
0
21.3
0
-10
1
-20
2012
2015
21
11
-20 -9
-9
10
-10
1
2012
2015
42.8
31
-10
1
20
10
11
11
-10
Baseline
-20
0
Scenario 4 3/
51
41
31.3
31
25.1
23.5
11
20
41
31
0
51
10
21.3
11
Scenario 3 3/
20
41
21.3
20.7
51
10
Scen
31
Rea l Excha nge Ra te
-9
2015
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
2
VAR Scenario 3
2
2
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
4
1
7
3
0
0
0
2
-2
3
-6
-1
-2
-1
0
1
-2
-2
-4
0
-3
-4
2012
-10
2017 2012
1/ Deviation in percent of baseline.
-6
-5
2017
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
41
Brazil
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
94
84
Rea l Excha nge Ra te (rhs)
Scenario 3 3/
Scenario 4 3/
30
94
30
94
30
94
30
94
30
20
84
20
84
20
84
20
84
20
10
74
10
74
10
74
10
74
0
64
74.8
74
Scen
63
64
0
64
-10
54
67
10
62
64.1
0
64
0
54
64
0
54.0
54
44
34
2003
2006
2009
2012
-20
44
-30
34
Baseline 54.0
-10 54
-10 54
-10
-20 44
-20 44
-20 44
-20
-30 34
2012
2015
-10 54
-30 34
-30 34
2012
2015
2015
2012
-30
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
34
20
24
10
Scenario 2 3/
34
20
Scen
18.7
10
24
0
14
15.6
0
-10
4
-20
2003
2006
2009
2012
-10
20
10
24
10
12.1
15.6
14
0
14
15.6
0
14
15.6
0
4
-10
4
-10
4
-20
-7
-10
-2
-7
2015
24
Scenario 4 3/
34
7.1
Baseline
-2
-7
10
20
9
9
4
34
17.6
13.5
14
Scenario 3 3/
20
19
19
15.6
34
29
29
24
Rea l Excha nge Ra te
-20
2012
-20 -7
-7
2012
2015
2012
2015
2015
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
5
5
1
VAR Scenario 3
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
2
5
0
4
-5
0
-1
3
1
3
-10
0
2
-15
-5
-3
1
0
-20
1
0
-25
-5
2012
-10
2017 2012
1/ Deviation in percent of baseline.
-1
-30
2017
2012
2017
-2
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
42
Chile
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
32
27
22
20
32
20
32
20
32
15
27
15
27
15
27
15
27
22
15
Scen
10
22
10
22
10
17
5
17
5
17
5
0
12
0
12
0
12
0
-5
7
-5
7
-5
7
-5
-10
2
-10
2
-10
-15 -4
-15
-4
-15
-20
-9
7
-5
7
2
-10
2
-10
2
-15
-4
-15
-4
-20
-9
-20
-9
-9
2003
2006
2009
2012
15
22
12
-4
21
20
5
0
11.4
17
28
10
13.5 5
12.6
Scenario 4 3/
32
10
12
Scenario 3 3/
20
17
17
Rea l Excha nge Ra te (rhs)
13.5
Baseline
2012
2015
-20 -9
2012
2015
2015
2012
-20
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Scenario 1 3/
WEO Baseline 2/
79
60
50
40
30
20
10
0
33.7
-10
-20
-30
-40
-50
-60
-70
69
59
56.5
49
39.2
39
29
19
9
-1
2003
2006
Rea l GDP growth
Externa l debt
2009
2012
Rea l Excha nge Ra te
Scenario 2 3/
59
20
59
Scenario 3 3/
20
59
20
Scenario 4 3/
59
20
54.3
54
54
49
10
Scen
39
0
32.9
34
49
10
49
0
39
0
39
-10
29
-20
19
52.0
10
Baseline
33.7
39
35.8
0
34
33.7
-10
33.7
33.7
-10 29
29
-10
24
24
19
2015
10
44
44
29
49
-20
2012
-20 19
19
2012
2015
2012
2015
2015
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
VAR Scenario 3
6
1
1
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
2
1
1
2
0
1
-3
-1
-1
-2
-7
0
-1
-2
-3
-11
-5
2012
-15
2017 2012
1/ Deviation in percent of baseline.
0
-6
-3
-3
-10
2017
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
43
Colombia
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Scenario 2 3/
Scenario 1 3/
52
47
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
52
20
20
52
Rea l Excha nge Ra te (rhs)
Scenario 3 3/
20
52
Scenario 4 3/
20
52
20
44
45.6
15
42
Scen
37
39
42
10
10
42
0
32
10
42
0
32
36
10
42
10
0
32
0
5
32.2
32
32
0
28
27.3
27
-5
22
-10
17
-15
27.3
12
22
2006
2009
2012
2012
2015
-10 22
-20 12
12
-20
2003
-10 22
Baseline
2015
-10
-20 12
-20 12
2012
2015
-10 22
2012
-20
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
43 40.1
20
43
10
33
38
Rea l Excha nge Ra te
Scenario 2 3/
Scenario 3 3/
20
43
20
43
10
33
10
33
20
Scenario 4 3/
43
20
10
33
10
0
23
Scen
33
25.7
28
22.6
23
19.7 0
23
19.5 0
18
23
20.0
-10
13
-20
3
Baseline
23
19.7
19.7
13
0
-10
13
-20
3
25.1
-10 13
0
19.7
19.7
-10
13
-20
3
-10
8
3
2003
2006
2009
2012
2015
2012
-20
2012
2015
3
2012
2015
2015
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
VAR Scenario 3
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
Primary Balance
(percent of GDP)
2
5
5
1
0
1
-5
0
1
2
VAR Scenario 4
Real Interest
Rate (percent)
Sovereign
Spread percent)
2
4
3
1
-3
-1
2
0
-10
-1
-7
1
-3
-11
-5
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-15
-2
-20
-3
-2
-25
2017
2012
2017
0
0
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
44
Ecuador
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
30
60
62
62
40
47.8
42
42
20
20.8
18.8
22
20
Scen
22
22
0
Rea l Excha nge Ra te (rhs)
Scenario 3 3/
30
62
10
42
0
22
27
Scenario 4 3/
30
20
62
10
0
30
20
62
42
10
42
10
22
0
22
0
39
46
20
20.8
2
2
-20
-10
2
-10
2
2
-10
-20 -18
-20
-10
Baseline
-18
-38
2003
2006
2009
2012
-40
-18
-60
-38
-20 -18
-30 -38
2012
2015
-20 -18
-30 -38
-30 -38
2012
2015
2015
2012
-30
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
47
20
47
37
10
37
Rea l Excha nge Ra te
Scenario 2 3/
Scen
Scenario 3 3/
20
47
20
47
20
Scenario 4 3/
47
20
10
37
10
37
10
37
10
0
27
0
27
0
27
-10
17
-10
17
30.5
29.4
27.8
29.4
27.3
27
0
27
17
-10
17
29.4
Baseline
29.4
24.4
-10 17
29.4
0
-10
15.6
7
-20
2003
2006
2009
2012
7
2015
-20
2012
7
-20
2012
2015
7
-20
2012
2015
7
2015
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
2
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
VAR Scenario 3
6
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
3
8
1
5
1
0
VAR Scenario 4
7
0
-3
6
2
-1
3
2
5
-2
-2
4
-3
1
-7
1
3
-4
-2
2
-5
-4
-1
-11
0
-6
1
0
-7
-6
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-3
-6
2017
2012
2017
-8
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
45
Mexico
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
73
73
50
20
73
Rea l Excha nge Ra te (rhs)
Scenario 3 3/
20
73
Scenario 4 3/
20
73
20
62
63
63
30
43.1
42.9
15
63
10
53
53
45.6
15
46
Scen
5
10
43
43
0
-10
42.9
33
33
-5
Baseline
13
23
2006
2009
2012
2012
2015
43
0
33
0
-5
33
-10
23
-15
10
53
5
43
0
-5
33
-10
-10
23
-15
23
-15
-20 13
-20 13
2015
15
63
10
5
43
-5
2012
2015
53
53
5
-20 13
13
-50
2003
-15
63
10
47
53
-10
-30
23
15
2012
-20
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Scenario 1 3/
WEO Baseline 2/
48
20
48
38
10
38
25.9 0
23.2
Scenario 2 3/
Scen
8
2006
2009
2012
Scenario 3 3/
20
48
20
48
20
Scenario 4 3/
48
20
10
38
10
38
10
38
10
28
0
28
0
28
0
28
30.1
25.5
25.9
25.9
18
2003
Rea l Excha nge Ra te
28.0
28.0
28
Rea l GDP growth
Externa l debt
-10
18
-20
8
2015
Baseline
2012
-10
18
-20
8
-10 18
-20
2012
2015
8
2012
2015
28.5
0
25.9
25.9
-10
18
-20
8
2015
-10
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
5
0
0
VAR Scenario 3
1
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
3
1
2
1
0
-1
-5
-5
-10
-10
-1
0
1
-2
-3
0
-3
-5
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-1
-15
2017
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
46
Paraguay
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
32
27
17
20
32
20
32
20
32
15
27
15
27
15
27
15
27
5
17
9.6 0
10
22
5
17
12
0
7
-5
Scen
12
10
22
10
17
5
17
5
12
0
12
0
12
0
7
-5
7
-5
7
-5
-10
2
-10
2
-10
-15 -4
-15
-4
-15
-20
-9
-10
2
-10
2
-15
-4
-15
-4
-20
-9
-20
-9
2003
2006
2009
2012
2012
2015
12
-20 -9
2012
2015
15
22
2
-9
20
5
-5
Baseline9.6
17
26
10
7
-4
Scenario 4 3/
32
22
12.9
12
Scenario 3 3/
20
10
22
Rea l Excha nge Ra te (rhs)
2015
2012
-20
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
42
20
42
32
10
32
19.8 0
Scenario 2 3/
Scen
22.4
22
21.0
22
2
2003
2006
2009
2012
-10
12
-20
2
2015
Baseline
2012
Scenario 3 3/
20
42
20
42
20
Scenario 4 3/
42
20
10
32
10
32
10
32
10
0
22
0
22
0
22
18.1
19.8
19.8
12
Rea l Excha nge Ra te
-10
12
-20
2
-20
2
2012
2015
0
19.8
19.8
19.8
-10 12
2012
2015
20.9
-10
12
-20
2
2015
-10
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
2
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
VAR Scenario 3
5
4
0
1
0
-3
-5
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
2
4
1
3
0
1
2
2
-2
-1
-7
-10
1
-2
0
-4
-11
-6
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-15
0
-3
-2
-20
2017
0
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
47
Peru
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
Scenario 2 3/
Scenario 1 3/
Rea l Excha nge Ra te (rhs)
Scenario 3 3/
Scenario 4 3/
45
25
45
25
45
25
45
25
45
35
15
35
15
35
15
35
15
35
25
19.6
5
25
-5
15
15
24
22
22
Scen
25
5
25
-5
5
25
5
25
5
15
-5
15
-5
15
-5
-15
5
-15
5
-15
5
-15
-25
-5
-25
-5
17
16.3
15
16.3
Baseline
5
-5
2003
2006
2009
2012
-15
5
-25
-5
2012
2015
-25 -5
2012
2015
2015
2012
-25
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
Rea l Excha nge Ra te
Scenario 2 3/
Scenario 3 3/
Scenario 4 3/
48.2
45
20
45
35
10
35
Scen
20
45
20
45
10
35
10
35
20
45
10
35
20
10
29.8
25.3
32.3
25.3
22.3 0
25
25
0
25
0
25
0
25
0
19.5
22.3
22.3
15
5
2003
2006
2009
2012
-10
15
-20
5
2015
Baseline
2012
-10
15
-20
5
22.3
-10 15
-20
2012
2015
5
2012
2015
22.3
-10
15
-20
5
2015
-10
-20
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
2
VAR Scenario 3
10
2
0
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
4
1
1
6
VAR Scenario 4
3
0
2
2
-2
-2
-1
0
-1
-2
1
-2
-6
-4
-6
-6
2012
-10
2017 2012
1/ Deviation in percent of baseline.
-3
-10
2017
0
-3
2012
2017
-4
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
48
Uruguay
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs)
Other (rhs)
Real interest rate (rhs)
Commodity Revenue (rhs)
WEO Baseline 2/
30
76
20
66
62
30
20
Scen
2009
2012
Baseline 43.0
-20
2012
2015
73
76
30
20
66
10
56
0
-20
-10
-10
36
-20
36
-20
-30 26
-30 26
2015
0
46
-10
36
2012
2015
10
46
-30 26
26
-30
2006
20
66
0
-10
-20
Scenario 4 3/
30
56
46
43.0 -10
36
76
10
47
0
46
32
20
66
56
0
42
Scenario 3 3/
30
10
51
56
52
76
56
10
52.3
Real Exchange Rate (rhs)
Scenario 2 3/
Scenario 1 3/
72
2003
Real GDP growth (rhs)
Public Debt (lhs)
2012
-30
2012
2015
2015
External Debt
Current account (exc. interests)
Other
Interest rate
Non-debt flows
Real GDP growth
External debt
Scenario 1 3/
WEO Baseline 2/
65
25
65
55
15
55
5
45
45
40.4
Real Exchange Rate
Scenario 2 3/
Scen
Scenario 3 3/
65
25
65
25
65
25
15
55
15
55
15
55
15
5
45
5
45
5
45
5
-5
35
-5
35
-5
35
36.4
33.4
35
-5
35
30.9
33.4
33.4
25
15
2003
2006
2009
2012
-15
25
-25
15
2015
Baseline
2012
Scenario 4 3/
25
-15
25
-25
15
-25 15
2012
2015
-5
33.5
33.4
33.4
-15 25
2012
2015
34.3
-15
25
-25
15
2015
-15
-25
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
2
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
5
10
0
VAR Scenario 3
VAR Scenario 4
Primary Balance
(percent of GDP)
2
5
1
0
0
Real Interest
Rate (percent)
Sovereign
Spread percent)
1
4
3
0
-2
3
2
-1
-5
-5
0
-2
-10
-4
1
1
-10
-6
-8
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-15
-3
-20
-4
-1
-25
2017
2012
2017
0
-5
2012
2017
2012
-1
2017 2012
-1
2017
2012
2017
49
Venezuela, Rep. Bol.
Factors Driving Public and External Debt Dynamics, 2003-17 1/
(percent of GDP)
Public Debt
Non-commodity PB (rhs )
Other (rhs )
Rea l i nterest ra te (rhs)
Commodi ty Revenue (rhs)
WEO Baseline 2/
Scenario 2 3/
Scenario 1 3/
140
79.6
81
40
92
101
101
30
Scen
100
81
20
60
79.6
61
41
-100
1
21
2009
2012
-20
1
-140
2006
101
83
30
81
20
10
61
-30
2012
2015
97
30
81
20
10
61
-20
-30
2012
30
81
20
10
61
0
-10
-10
21
-20
1
2015
40
41
-10
1
104
101
0
41
21
2015
Scenario 4 3/
40
101
0
-10
-60
21
Scenario 3 3/
41
Baseline
Rea l Excha nge Ra te (rhs)
40
0
-20
41
10
61
20
51.3
49.3
2003
Rea l GDP growth (rhs)
Publ i c Debt (lhs)
-30
2012
21
-20
1
-30
2012
2015
2015
External Debt
Current a ccount (exc. i nterests)
Other
Interest ra te
Non-debt flows
Rea l GDP growth
Externa l debt
Scenario 1 3/
WEO Baseline 2/
92
50
92
72
30
72
Rea l Excha nge Ra te
Scenario 2 3/
Baseline
50
92
30
72
Scenario 3 3/
50
92
30
72
48.5
46.2 10
42.0
52
40.3
10
52
10
-10
32
52
30
72
50
30
70.4
10
46.2
46.2
32
Scenario 4 3/
92
57.3
54.9
52
50
52
10
46.2
46.2
-10
32
-10 32
-10
32
-10
-30
12
-30 12
-30
12
-30
-50
-8
-50
-8
Scen
12
-8
2003
2006
2009
2012
-30
12
-50
-8
2015
2012
-50 -8
2012
2015
2012
2015
2015
-50
2012
2015
1/ Public and external debt dynamics under alternative global scenarios.
2/ Country desk projections (based on WEO baseline assumptions).
3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
Key Domestic Variables under Alternative Scenarios, 2012-17
(deviations from baseline)
VAR Scenario 1
Real GDP 1/
(Index)
Real GDP Growth
(percent)
4
0
VAR Scenario 2
Current Account
(exc ints., % GDP)
Real Exchange
Rate 1/ (Index)
5
10
1
6
VAR Scenario 3
4
VAR Scenario 4
Primary Balance
(percent of GDP)
2
Real Interest
Rate (percent)
Sovereign
Spread percent)
2
4
0
1
0
2
-3
2
-2
-7
-2
-4
-4
0
-4
0
-8
-11
-12
2012
-15
2017 2012
1/ Deviation in percent of baseline.
-8
-10
2017
-1
-6
-6
2012
2017
-8
2012
2017
2012
-2
2017 2012
-2
2017
2012
2017
Table A1. VAR Estimation Results
VARIABLES
L.growth
(1)
growth
Argentina
(2)
(3)
dtb
dlnreer
(1)
growth
0.870*** -0.199*** 1.401**
(0.118)
(0.055)
(0.659)
-0.110
-0.006
0.712
(0.126)
(0.060)
(0.709)
0.341*
0.055
1.276
(0.180)
(0.086)
(1.023)
0.015
0.168**
-0.138
(0.181)
(0.080)
(1.018)
-0.048** -0.002 0.386***
(0.020)
(0.010)
(0.110)
0.032* -0.069*** -0.212*
(0.019)
(0.009)
(0.108)
L2.growth
L.dtb
L2.dtb
L.dlnreer
L2.dlnreer
wgdp_gr
L3
L4
Brazil
(2)
dtb
0.028 -0.092***
-0.107
-0.019
-0.172+
-0.018
-0.115
-0.02
0.352
0.540***
-0.653
-0.115
0.506
0.12
-0.61
-0.108
0.024
-0.005+
-0.02
-0.004
0.035*
0.001
-0.021
-0.004
0.113
-0.032
-0.365
-0.065
0.297 -0.185***
-0.366
-0.065
(3)
dlnreer
-0.505
-0.586
-0.029
-0.628
1.695
-3.624
-0.364
-3.352
0.064
-0.113
-0.191*
-0.105
-1.592
-2.024
1.414
-1.979
(1)
growth
L2
L3
L4
vix
L0
L1
energy
L0
L1
L2
-0.062*
(0.032)
0.032
(0.033)
0.022+
(0.015)
-0.013
(0.015)
0.014
(0.014)
-0.000
(0.000)
0.000+
(0.000)
0.005
(0.007)
0.006
(0.007)
-0.008
(0.007)
0.012
(0.184)
-0.009
(0.185)
-0.087
(0.087)
0.178**
(0.085)
-0.016
(0.077)
L0
-0.015
-0.021
-0.002
-0.004
-0.274**
-0.114
L2
-0.025+
-0.016
-0.031**
-0.013
0
-0.003
0.004*
-0.002
0.048
-0.08
0.102+
-0.071
L0
L1
L4
L0
L1
L2
Bolivia
(2)
dtb
(3)
dlnreer
-0.531***
-0.03
0.237
-0.104
-0.071
-0.218
-0.083
-0.089 0.541***
-0.099
-0.068
-0.208
-0.025 0.528***
0.09
-0.163
-0.112
-0.341
0.102
0.027
-0.076
-0.157
-0.108
-0.328
0.059 -0.086*** 0.124
-0.052
-0.033
-0.109
0.114**
-0.023
-0.08
-0.053
-0.034
-0.111
0.059
0.219
0.089
-0.35
-0.231
-0.731
-0.592*
0.204
0.42
-0.338
-0.231
-0.706
0.528*
-0.058
-0.022
-0.307
-0.212
-0.641
-0.048*
0
0.244***
-0.027
0
-0.057
-0.005
0
-0.181***
-0.027
0
-0.056
-0.030** -0.002
-0.043*
-0.012
-0.008
-0.025
0.022*
0.007
0.011
-0.011
-0.007
-0.024
0.001
-0.008
0.034+
-0.011
-0.007
-0.022
(1)
growth
L4
L0
Chile
(2)
dtb
(3)
dlnreer
0.116
-0.026 0.743***
-0.094
-0.047
-0.227
-0.077 -0.175*** -0.413*
-0.098
-0.05
-0.238
-0.383* 0.471*** -1.069**
-0.227
-0.115
-0.486
0.354*
-0.12
0
-0.205
-0.103
0
0.003
-0.009
0.091
-0.042
-0.021
-0.103
0.101**
-0.018 -0.408***
-0.041
-0.021
-0.099
1.570*** 0.274*
0.138
-0.311
-0.158
-0.744
-0.011
-0.012
0
-0.006
(1)
growth
L1
Colombia
(2)
(3)
dtb2
dlnreer
-0.232** -0.068***
0
-0.098
-0.025
0
0.222** -0.059**
0
-0.098
-0.026
0
-0.000+ 0.736*** -0.282
0
-0.107
-1.44
0
-0.017
-1.121
0
-0.104
-1.482
0.015
-0.004
-0.06
-0.029
-0.007
-0.103
0.025
0.012+ -0.159+
-0.028
-0.007
-0.098
0
0.025
0
0
-0.069
0
-0.028
-0.027
L0
-0.044***
-0.017
0
0
-0.251***
-0.06
-0.019
-0.033
-0.049
-0.034
L2
0.01
-0.01
0.01
-0.01
0
-0.003
-0.002
-0.002
-0.005
-0.036
0.039
-0.034
(1)
growth
L0
L1
L3
-0.001 -0.028***
-0.013
-0.007
L4 -0.038*** -0.007
-0.014
-0.007
L3
L0
L1
L2
L3
L4
food
L2
L3
0.050*
(0.028)
0.044+
(0.029)
-0.022+
(0.014)
0.010
(0.014)
-0.000*
(0.000)
-0.000*
(0.000)
L1
0.036*
(0.020)
-0.011
(0.021)
-0.005
(0.009)
-0.017*
(0.010)
-0.052
(0.114)
-0.113
(0.115)
L0
L2
0.045
-0.032
0.025
-0.03
0.005
-0.006
0.006
-0.005
0.014
-0.17
0.250+
-0.165
0.043**
-0.019
0.035*
-0.021
-0.003
-0.003
0.003
-0.004
0.368***
-0.108
-0.041
-0.119
L0
L1
L2
metals
L0
L1
L1
L1
L2
0.084***
0.004
-0.026
-0.018
0.028
0.060***
-0.027
-0.018
0.021
-0.006
-0.031
-0.021
0.031+ -0.029**
-0.021
-0.014
0.01
-0.003
-0.022
-0.015
0.011
-0.055
0.037
-0.057
-0.049
-0.064
-0.059
-0.043
-0.012
-0.046
L1
L1
0.769*
(0.467)
0.188**
(0.080)
-2.922
(2.636)
0.496
-0.353
-0.17
-0.289
0.879
-0.647
76
14.7
0.468
0.72
0.66
12.3
76
14.7
0.468
0.72
0.66
12.3
76
14.7
0.468
0.72
0.66
12.3
82
17.3
0.337
0.67
0.40
10.3
L2
Constant
Observations
df_eq
r2_3
r2_2
r2_1
aic
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.10, + p<0.15
0.056 -0.000***
-0.062
0
0.082+
0.000**
-0.051
0
0.296*** 5.849*
-0.114
-3.357
82
17.3
0.337
0.67
0.40
10.3
82
17.3
0.337
0.67
0.40
10.3
L2
L3
-0.189
0.569**
-0.372
-0.244
-0.263 -0.688***
-0.313
-0.211
2.633*** -0.097
-0.643
-0.229
81
21.3
0.519
0.57
0.45
10.5
81
21.3
0.519
0.57
0.45
10.5
-0.064
-0.777
0.498
-0.653
-2.300*
-1.335
81
21.3
0.519
0.57
0.45
10.5
0.104
-0.092
L0
L2
L0
L1
L3
L1
0.004
-0.007
L1
L2
dprbal
0.045*
-0.026
L4
0.035* 0.054*** 0.222***
-0.019
-0.01
-0.047
0.043*
0.018+
-0.061
-0.024
-0.012
-0.058
-0.001
0.011
0.074
-0.024
-0.012
-0.055
-0.022
0.002
0.088*
-0.021
-0.011
-0.05
-0.373**
0.023
0.055
-0.189
-0.096
-0.454
L3
L4
-0.203
-0.305
0.005
-0.078
0.609
-1.105
L3
77
14.7
0.447
0.75
0.64
10.6
77
14.7
0.447
0.75
0.64
10.6
77
14.7
0.447
0.75
0.64
10.6
(3)
dlnreer
0.049
-0.161**
-0.22
-0.129
-0.073
-0.423
-0.151
-0.036
0.902*
-0.144
-0.081
-0.472
-0.497** 0.629*** -0.977
-0.227
-0.129
-0.745
0.147
-0.133 -1.414**
-0.203
-0.116
-0.669
-0.005
-0.022 0.284***
-0.034
-0.019
-0.11
0.002
-0.009 -0.485***
-0.033
-0.019
-0.109
0.668+
-0.199
1.135
-0.446
-0.222
-1.446
-0.001
0
0.039
-0.025
0
-0.077
0.019
0.042*** -0.147**
-0.02
-0.011
-0.067
0.017
0.024**
0.123*
-0.021
-0.012
-0.069
0.047**
0.004
0.046
-0.022
-0.013
-0.074
0.028
-0.012 0.229***
-0.022
-0.013
-0.073
0.036* -0.032*** 0.191***
-0.021
-0.012
-0.068
0.043
0.034+
0.1
-0.038
-0.022
-0.125
0.052
-0.036+
0.027
-0.04
-0.023
-0.131
0.058+
0.016
0.172
-0.039
-0.022
-0.13
0.011
-0.02
-0.007
-0.039
-0.022
-0.129
1.752***
-0.428
0.079
-0.063
5.757***
-1.332
-0.357*
-0.205
-0.104
-0.195
0.168
-0.837
85
10.7
0.267
0.68
0.28
9.6
85
10.7
0.267
0.68
0.28
9.6
85
10.7
0.267
0.68
0.28
9.6
67
20.7
0.564
0.85
0.35
12.7
L4
Ecuador
(2)
dtb
-0.08
-0.116
0.172+
-0.111
0.261
-0.221
-1.227*
-0.674
0.225
-0.642
-3.235
-2.627
67
20.7
0.564
0.85
0.35
12.7
67
20.7
0.564
0.85
0.35
12.7
51
Table A1. VAR Estimation Results (cont.)
VARIABLES
L.growth
L2.growth
L.dtb
L2.dtb
L.dlnreer
L2.dlnreer
wgdp_gr
L0
L1
L2
(1)
growth
Mexico
(2)
dtb
-0.079
-0.073**
-0.127
-0.029
0.015
-0.122***
-0.104
-0.024
0.16
0.621***
-0.376
-0.095
0.195
-0.113
-0.338
-0.086
0.102***
-0.006
-0.021
-0.005
0.027
0.002
-0.023
-0.005
0.975***
-0.022
-0.288
-0.062
0.833**
0.046
-0.331
-0.076
-0.103
0.216***
-0.36
-0.083
(3)
dlnreer
(1)
growth
Paraguay
(2)
dtb2
(3)
dlnreer
(1)
growth
-1.074+
-0.733
0.728
-0.571
0
0
0
0
0.099
-0.126
-0.057
-0.134
2.524+
-1.729
-1.353
-1.976
-1.143
-2.113
-0.273**
-0.123
-0.147
-0.127
-0.249
-0.19
0.147
-0.172
-0.035
-0.085
0.004
-0.081
0.842
-0.786
0.855
-0.845
-0.521
-0.839
0.74
-0.726
-0.024
-0.053
0.004
-0.032
-0.037
-0.032
-0.055*
-0.029
-0.166*
-0.089
-0.067
-0.092
0.465***
-0.13
0.180+
-0.125
-0.005
-0.061
0.07
-0.058
-0.257
-0.518
0.371
-0.591
0.259
-0.599
-0.328
-0.52
0
0
-0.007
-0.023
-0.037+
-0.023
0.021
-0.021
0.193
-0.181
-0.208
-0.187
-0.262
-0.28
0.046
-0.254
0.287**
-0.126
-0.181+
-0.119
1.527
-1.159
-1.1
-1.244
0.602
-1.235
0.106
-1.069
-0.045
-0.078
-0.025
-0.046
0.065
-0.047
-0.058
-0.043
0.234**
-0.101
-0.093
-0.11
-0.511
-0.392
0.213
-0.355
-0.019
-0.066
0.029
-0.056
0.151
-0.423
0.018
-0.058
0.076
-0.058
0.008
-0.067
0.103*
-0.062
0.08
-0.064
0.024
-0.042
0.03
-0.042
-0.071+
-0.047
0.023
-0.045
0.014
-0.046
0.098
-0.086
0.246***
-0.086
0.079
-0.098
0.143+
-0.091
-0.042
-0.094
L0
L1
L2
L3
vix
L0
energy
L0
L1
L2
0.007
-0.015
0.001
-0.01
0.015+
-0.009
-0.01
-0.01
0
0
0.008***
-0.002
-0.003+
-0.002
0.005**
-0.002
-0.139+
-0.092
0.036
-0.057
0.056
-0.054
0.027
-0.057
L1
L2
L3
L4
L0
Peru
(2)
dtb
(3)
dlnreer
-0.109*** 0.607***
-0.031
-0.171
-0.01
-0.178
-0.034
-0.187
0.704***
0.032
-0.122
-0.665
-0.258**
0.048
-0.108
-0.602
-0.001
0.223**
-0.02
-0.111
-0.025
-0.181*
-0.017
-0.094
0.221*
-1.587**
-0.126
-0.717
L0
L1
L1
L1
-0.043*
-0.024
0.031**
-0.015
0
0
-0.001
-0.005
-0.018
-0.039
-0.017
-0.026
L0
L0
L1
L2
(1)
growth
Uruguay
(2)
dtb
(3)
dlnreer
0.221+
-0.148
0.106
-0.128
0
0
-0.000*
0
-0.002
-0.058
-0.021
-0.055
1.672***
-0.612
-0.645
-0.635
-0.009
-0.064
0.02
-0.056
0.309**
-0.139
0.225*
-0.126
-0.042**
-0.021
0.023
-0.02
0.382+
-0.235
-0.623**
-0.26
0
0
0
0
-0.299
-1.141
-0.961
-0.932
0.097
-0.152
0.077
-0.153
0
0
0
0
-0.024
-0.039
-0.049*
-0.028
0.062**
-0.029
-0.034
-0.03
0.000**
0
-0.01
-0.01
0.009
-0.011
-0.018+
-0.011
-0.106
-0.11
0.131+
-0.084
-0.133*
-0.076
0.06
-0.078
0.074
-0.06
0.006
-0.055
-0.005
-0.022
0.023
-0.02
0.267+
-0.18
-0.267+
-0.171
(1)
growth
L1
L2
L0
L1
L2
L3
L4
food
L0
L1
L2
L3
L4
metals
dprbal
L2
Constant
Observations
df_eq
r2_3
r2_2
r2_1
aic
L4
L0
L1
L2
L3
L0
0.055**
-0.023
0.016**
-0.007
L2
-0.135 -0.119***
-0.102
-0.034
-0.332***
-0.045
-0.109
-0.037
-1.025*** 0.762***
-0.356
-0.12
0.967*** -0.239**
-0.324
-0.109
-0.034
-0.033*
-0.054
-0.018
0.071
-0.021
-0.055
-0.019
0.882
0.163
-1.201
-0.385
-0.195
0.34
-1.142
-0.384
0.289
-0.226
0.33
-0.247
0.135
-0.794
0.626
-0.719
0.017
-0.121
0.097
-0.124
0.812
-2.54
-2.636
-2.539
-0.116*
-0.061
0.089*
-0.049
0.066
-0.05
-0.015
-0.049
0.102**
-0.043
0.140+
-0.091
-0.115
-0.094
-0.018
-0.095
0.089
-0.094
0
0
0.019
-0.017
-0.008
-0.017
0.01
-0.017
-0.025*
-0.015
0.047+
-0.031
-0.009
-0.032
0.046
-0.033
-0.062*
-0.032
0
0
-0.072
-0.11
0.186*
-0.11
0.026
-0.11
0.034
-0.097
-0.576***
-0.203
-0.313+
-0.213
-0.264
-0.215
-0.045
-0.211
0.070*
-0.039
-1.470**
-0.272+
-3.194
-0.874
0.036
-0.518
-0.175
-0.004
0.193
-0.51
-0.000***
0.000**
-0.206
0.147
-0.972
-0.723
-0.806+
-0.55
-0.166
-0.076
-0.069
-4.294
2.832
-3.352
-0.666
0.126
-1.914
-0.46
0.179
-0.515
-0.982
0.16
-2.842
-0.367
1.812**
-0.734
-0.112
0.015
-0.114
-0.623
0.929
-1.211
-0.927
0.421
-1.222
0
0.223
-0.175
0
2.365
-2.652
-0.324
2.343
-2.023
-0.11
-0.175
-0.319
-0.726
1.739
-2.108
88
14.0
0.16
0.73
0.57
9.3
88
14.0
0.16
0.73
0.57
9.3
88
14.0
0.16
0.73
0.57
9.3
69
20.7
0.40
0.44
0.28
14.9
69
20.7
0.40
0.44
0.28
14.9
69
20.7
0.40
0.44
0.28
14.9
77
11.7
0.29
0.64
0.30
9.7
77
11.7
0.29
0.64
0.30
9.7
77
11.7
0.29
0.64
0.30
9.7
42
13.0
0.23
0.51
0.35
13.2
42
13.0
0.23
0.51
0.35
13.2
42
13.0
0.23
0.51
0.35
13.2
73
18.3
0.28
0.74
0.37
16.7
73
18.3
0.28
0.74
0.37
16.7
73
18.3
0.28
0.74
0.37
16.7
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.10, + p<0.15
L4
L3
Venezuela
(2)
(3)
dtb
dlnreer
L2
L3
Table A2.
Estimation of Country Sovereign Spreads - OLS
(1)
(2)
-11.097
(9.024)
1.262
(5.966)
-3.679
(11.681)
18.846*
(10.588)
-8.522***
(3.190)
-6.596**
(2.628)
5.187**
(2.415)
12.907**
(5.332)
3.706
(3.405)
-3.484
(2.443)
2.559
(2.702)
7.957*
(4.662)
18.641***
(6.207)
-0.738
(2.601)
2.649
(2.616)
2.627
(2.674)
10.880**
(4.334)
0.155
(5.895)
-4.580
(12.038)
18.623*
(10.579)
-8.633***
(3.178)
-6.592**
(2.627)
5.108**
(2.318)
12.960**
(5.289)
3.832
(3.340)
-3.280
(2.360)
2.632
(2.618)
8.141*
(4.620)
18.657***
(6.215)
-0.630
(2.510)
2.818
(2.537)
2.750
(2.588)
10.694**
(4.272)
VARIABLES
L.dca
L.ded
L.dpb
L.dpd
L.dfxresy
dlnreer
dvix
_IifsXdvi_213
_IifsXdvi_223
_IifsXdvi_228
_IifsXdvi_233
_IifsXdvi_243
_IifsXdvi_248
_IifsXdvi_273
_IifsXdvi_293
_IifsXdvi_298
_IifsXdvi_299
(3)
dembispread
(4)
(5)
-4.586
(11.976)
18.721*
(9.753)
-8.625***
(3.052)
-6.591**
(2.609)
5.111**
(2.317)
12.955**
(5.257)
3.831
(3.343)
-3.282
(2.364)
2.630
(2.619)
8.139*
(4.618)
18.654***
(6.212)
-0.633
(2.515)
2.817
(2.537)
2.745
(2.582)
10.692**
(4.270)
18.737*
(9.749)
-8.807***
(3.012)
-6.587**
(2.607)
5.159**
(2.323)
12.907**
(5.261)
3.772
(3.332)
-3.444+
(2.333)
2.607
(2.623)
8.094*
(4.630)
18.602***
(6.197)
-0.680
(2.513)
2.731
(2.543)
2.704
(2.588)
10.633**
(4.273)
19.655**
(9.720)
2,990
0.147
2990
.
.
.
26.30
2,990
0.147
2990
.
.
.
27.34
L.dpd_sq
Observations
2,990
2,990
R-squared
0.148
0.147
N
2990
2990
r2_o
.
.
r2_w
.
.
r2_b
.
.
F
24.88
25.43
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.10, + p<0.15
(6)
(7)
11.780
14.275
(19.503) (19.194)
-9.024***
(3.163)
-6.620** -6.677** -6.691**
(2.627)
(2.601)
(2.619)
4.867**
5.165**
4.866**
(2.391)
(2.334)
(2.398)
13.229** 12.840** 13.183**
(5.289)
(5.214)
(5.248)
3.935
3.727
3.903
(3.356)
(3.343)
(3.364)
-3.295
-3.455+
-3.301
(2.391)
(2.344)
(2.399)
2.885
2.555
2.850
(2.680)
(2.634)
(2.687)
8.330*
8.063*
8.311*
(4.698)
(4.650)
(4.713)
18.697*** 18.615*** 18.708***
(6.249)
(6.189)
(6.243)
-0.419
-0.699
-0.428
(2.572)
(2.521)
(2.578)
3.095
2.689
3.069
(2.611)
(2.555)
(2.619)
3.048
2.696
3.048
(2.664)
(2.600)
(2.674)
11.039** 10.595** 11.017**
(4.291)
(4.279)
(4.294)
0.039
0.030
(0.103)
(0.102)
2,990
0.145
2990
.
.
.
29.29
2,990
0.147
2990
.
.
.
26.33
2,990
0.145
2990
.
.
.
28.08