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Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies

Author

Listed:
  • Kopits, George

    (Woodrow Wilson International)

  • Ferrarini, Benno

    (Asian Development Bank)

  • Ramayandi, Arief

    (Asian Development Bank)

Abstract

The paper explores risk-based fiscal analytical approaches to complement a standard debt sustainability analysis when applied under conditions of risk and uncertainty. To outline a possible road map for risk-adjusted fiscal sustainability analysis, the paper first examines the types of vulnerability faced by different emerging economies in Asia and reviews a range of stochastic methods that attempt to explicitly incorporate risk in their analysis. Drawing on international experience, we note that the usefulness of applying a stochastic approach hinges on policy makers’ capacity to identify the sources and extent of risks in assessing fiscal sustainability, which should then allow them to simulate the impact of a hypothetical corrective action on the baseline trajectory of debt or net worth and on its stochastic distribution, including fat-tail risks of default.

Suggested Citation

  • Kopits, George & Ferrarini, Benno & Ramayandi, Arief, 2016. "Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies," ADB Economics Working Paper Series 483, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0483
    as

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    File URL: https://www.adb.org/publications/risk-adjusted-fiscal-sustainability-analysis-asian-economies
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    4. Enrique G. Mendoza & P. Marcelo Oviedo, 2009. "Public Debt, Fiscal Solvency and Macroeconomic Uncertainty in Latin America The Cases of Brazil, Colombia, Costa Rica and Mexico," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(2), pages 133-173, July-Dece.
    5. Hana Polackova Brixi & Allen Schick, 2002. "Government at Risk : Contingent Liabilities and Fiscal Risk," World Bank Publications - Books, The World Bank Group, number 15233.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Mr. George Kopits, 2016. "The Case for an Independent Fiscal Institution in Japan," IMF Working Papers 2016/156, International Monetary Fund.
    2. Ferrarini, Benno & Hinojales, Marthe, 2018. "State-Owned Enterprises Leverage as a Contingency in Public Debt Sustainability Analysis: The Case of the People's Republic of China," ADB Economics Working Paper Series 534, Asian Development Bank.

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    More about this item

    Keywords

    fiscal sustainability; risk-based fiscal analysis; sovereign debt; stochastic approach;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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