Research Information System
International Conference on Empirical Economics and Social Sciences, Balıkesir, Turkey, 03 July 2021, pp.93-94
ABSTRACT
In this study, we investigate the stability of fiscal posture in Turkey from a forward-looking perspective. For this
purpose, we run 1000 stochastic simulations to construct a fan-chart to exhibit the potential trajectories of
public debt level in the near future. The fan-chart approach enables us to monitor the worst-case scenarios and
their likelihood of occurrence in a probabilistic viewpoint. In this manner, it can be deemed as an early warning
mechanism for a looming potential fiscal distress. To reap the full benefits of the fan-chart approach, we
estimate an autoregressive model with maximum likelihood technique using the data set which covers the
1958-2020 period, which is the longest data range used in the literature in Turkey thus far. This model serves
the purpose of a data generating process for the simulations, which involves dynamic simulations with
incorporated coefficient uncertainty. The data used for the baseline estimation are retrieved from the IMF
database and is defined as the ratio of total public debt to GDP level for each year. The empirical findings are
suggestive that in the next five years, even in the worst-case scenario, the debt/GDP ratio will not exceed the
40 % level with the probability of 90 %. This finding indicates that the debt/GDP ratio is very likely to remain in
sub-Masctricht criteria levels in the next five years. Apart from that, the baseline forecast level of the public
debt/DGP ratio is around 25 % which is lower than its current level. This result points to a decline in the debt
ratio in the upcoming years which is a favourable posture for fiscal sustainability.
Keywords:Fiscal Stability, Fan-Chart Approach, Public Debt.