Public Debt Dynamics under Uncertainty

This online course, presented jointly by the Institute for Capacity Development and the Fiscal Affairs Department, provides an overview of how to assess public debt dynamics under uncertainty. That is, the course discusses how to think about public debt projections when we acknowledge uncertainty about the key variables that underly debt projections (GDP growth, interest and exchange rates, and primary balances). This one-module course will allow you to produce and interpret fan charts (a graphical tool used to describe uncertainty about the evolution of a variable over time). The course will also present the concepts of maximum debt limit (level of debt surpassing which could have significant negative consequences for the economy) and safe debt (a level of debt sufficiently below the debt limit to provide a comfortable and prudent buffer). The course explains how to use fan charts to derive a safe level of debt and how to assess fiscal risks.

• Explain what a fan chart of debt is.
• Interpret a fan chart to identify risks to public debt dynamics.
• Understand how to produce fan charts through simple Monte Carlo simulations.
• Understand how to produce fan charts using VAR models and fiscal reaction functions.
• Understand the concept of safe debt and maximum debt limit.
• Evaluate debt dynamics under uncertainty.

• Basic Microsoft Excel skills and access to a computer with a reliable Internet connection and a Google Chrome web browser are essential.