Working Paper Series: Special Edition of 2016 to 2018 Interns

5.2 Debt Sustainability Analysis Results For the purpose of the debt sustainability analysis, three scenarios were conducted, namely: 1) A baseline scenario assuming no weather-related shocks; 2) A natural disaster scenario incorporating the baseline primary surplus; and 3) A natural disaster scenario with a primary surplus adjusted to meet the 60 per cent target by 2030. Under all three scenarios, both the long- term average real growth rates, as well as, the average real interest rates were used. In addition, the debt to GDP ratios as at December 2016 were used as the starting debt levels in the analysis.

Table 4: Baseline Scenario

AXA ATG 2.75% 2.9%

DOM

GDA

MON

SKN

SLU

SVG

2.2% 0.6%

2%

2%

2.2%

2.2%

2.3%

Growth

N/A N/A

2.4%

1.4%

N/A N/A

0.81% 1.01% 1.35%

Primary Surplus

60%

60%

60%

60%

60%

60%

Debt by 2030

Under the baseline scenario, all countries are expected to meet the benchmark of 60 per cent by 2030 with average forecasted growth rates ranging from 2.0 per cent in Grenada and Montserrat to 2.9 per cent in Antigua and Barbuda (Table 4). In addition, member countries would be required to generate primary surpluses ranging from 0.6 per cent of GDP (Dominica) to 2.4 per cent of GDP (Antigua and Barbuda). This baseline scenario shows the projected debt outlook for the economies before the natural disaster shock is simulated in 2018. Anguilla and Montserrat were not included in the analysis given that both countries are already below the established debt target at 53.8 and 5.1 per cent respectively as at December 2016. In table 5, the coefficient from Model 2 above (-2.76) representing the average growth impact of an intense natural disaster, is inputted into the DSA in the year of the shock, in this case, 2018. It is assumed, that growth rates would return to their long run path, as shown in Table 4, following the passage of the natural disaster. In addition, the scenario maintains the primary surplus positions established under the baseline. The results of the alternative scenario of the DSA of the ECCU countries indicate that if each country were to experience an intense natural disaster as early as 2018, most of the countries are not likely to meet their debt targets by the year 2030.

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