A long-term approach for analysing public debt sustainability: a case study of Mongolia

Given the lack of a long-term, holistic approach to assess public debt sustainability, ESCAP's 2023 Economic and Social Survey of Asia and the Pacific proposes an “augmented†approach, which duly incorporates a country’s spending needs to achieve the Sustainable Development Goals (SDGs), SDG financing strategies, and governments’ structural development policies that go beyond financial investments. This working paper demonstrates the application of this approach in the case of Mongolia. The quantitative analysis shows that investing in the SDGs would likely result in a surging government debt level due to large spending needs. Yet, after taking into account a package of development policies to foster a green and diversified economy as well as financing strategies to mobilize fiscal resources and attract private finance for development in Mongolia, the government debt level is expected to fall notably in the long run. This calls for official and private creditors, credit rating agencies and financial markets in general to consider public debt sustainability from both short- and long-term perspectives. Governments in developing countries should aim to strike a balance between achieving the SDGs and maintaining long-term public debt sustainability.