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The PBO analytical model for public debt sustainability analysis

Significant borrowing by Government has been required to manage the economic and fiscal impact of the COVID-19 pandemic. In this paper, we present a model to facilitate a public debt sustainability analysis. This model enables us to assess the potential implications of the pandemic for medium and long-term debt sustainability, and, more generally, to examine the trajectory of the ratio of Government debt to national income over the next 10 years. Our method is novel among standard deterministic debt sustainability models, in that it allows for a more granular approach to modelling the interest rate effect (i.e. the impact of changes to the interest rate on the debt ratio). This approach further enables us to model and approximate annual interest spending. This work is part of a capacity building exercise, and the first of a set of tools to be used by the PBO in debt sustainability analysis.[…]