WPS8157 Policy Research Working Paper 8157 A Cross-Country Database of Fiscal Space M. Ayhan Kose Sergio Kurlat Franziska Ohnsorge Naotaka Sugawara Development Economics Development Prospects Group August 2017 Policy Research Working Paper 8157 Abstract This paper presents a comprehensive cross-country data- many countries before the global financial crisis. In advanced base of fiscal space, broadly defined as the availability of economies, following severe deteriorations during the crisis, budgetary resources for a government to service its finan- many indicators of fiscal space have virtually returned to cial obligations. The database covers up to 200 countries levels in the mid-2000s. In contrast, fiscal space has shrunk over the period 1990–2016, and includes 28 indicators of in many emerging market and developing economies since fiscal space grouped into four categories: debt sustainability, the crisis. Second, financial crises tend to coincide with balance sheet vulnerability, external and private sector debt deterioration in multiple indicators of fiscal space, but they related risks as potential causes of contingent liabilities, and are often followed by reduced reliance on short-term bor- market access. The authors illustrate potential applications rowing. Finally, fiscal space narrows in energy-exporting of the database by analyzing developments in fiscal space emerging market and developing economies during oil price across three time frames: over the past quarter century; plunges but later expands, often because of procyclical fiscal during financial crises; and during oil price plunges. The tightening and, in some episodes, a recovery in oil prices. main results are as follows. First, fiscal space had improved in This paper is a product of the Development Prospects Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at akose@worldbank.org, fohnsorge@worldbank.org, and nsugawara@worldbank.org. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team A Cross-Country Database of Fiscal Space M. Ayhan Kose, Sergio Kurlat, Franziska Ohnsorge, and Naotaka Sugawara Key Words: Fiscal policy; sovereign debt; …scal de…cit; private debt; …nancial crises; oil prices. JEL Codes: E62; H62; H63. Kose (Development Prospects Group, World Bank; Brookings Institution; CEPR; CAMA; akose@worldbank.org); Ohnsorge (Development Prospects Group, World Bank; CAMA; fohnsorge@worldbank.org); Sugawara (Development Prospects Group, World Bank; nsugawara@worldbank.org). Kurlat was a consultant at the Development Prospects Group when the early analysis was conducted for this study. We would like to thank Carlos Arteta, Eduardo Boren- zstein, Kevin Clinton, Raphael Espinoza, Raju Huidrom, Anna Ivanova, Ugo Panizza, Evis Rucaj, Marc Stocker, Carlos Végh, Dana Vorisek and seminar participants at the World Bank for valuable comments, and Graeme Littler and Praveen Penmetsa for developing the database web interface. Xinghao Gong provided excellent research assis- tance. The …ndings, interpretations and conclusions expressed in this paper are entirely those of the authors and should not be attributed to the World Bank, its Executive Directors, or the countries they represent. The database is available at: http://www.worldbank.org/en/research/brief/fiscal-space. 1 Introduction The need for support to economic activity in the aftermath of the global …nancial crisis presented a painful reminder of the importance of a government’ s ability to implement e¤ective …scal stimulus. This ability is ultimately predicated on the availability of …scal space. Ample …scal space provides a government with the necessary budgetary resources to stimulate activity. Just as important, it provides credibility about the sustainability of the budget, and thereby helps to ensure that …scal stimulus is e¤ective in promoting growth.1 The availability of …scal space has also been at the center of recent debates on the deployment of …scal policy to accelerate growth in advanced and developing economies (IMF 2017; World Bank 2017a). Fiscal space is a complex concept as evident from multiple de…nitions and measures used in the literature. Some authors de…ne …scal space simply as the budgetary room to create and allo- cate funding for a certain purpose, such as smoothing the business cycle, or undertaking growth- enhancing investment projects, without threatening liquidity and sustainability of a sovereign’ s …nancial position (Heller 2005; Ley 2009). Perotti (2007) regards the notion of …scal space as an s intertemporal budget constraint. Others consider …scal alternative way of expressing a sovereign’ space as the di¤erence between the current level of public debt and a country-speci…c debt limit (Ostry et al. 2010).2 Although there is no single de…nition, a core aspect of …scal space is “the ability of a government to service its debt.” Unless debt service capacity is maintained, a government cannot inde…nitely …nance its operations in a sound manner. Debt service capacity itself has multiple dimensions, including …nancing needs that are related to budget positions, access to liquid markets, resilience to valuation changes, and contingent liabilities. Recent research presents databases that include select indicators of …scal space, including those associated with the debt service capacity of sovereigns.3 Some authors focus on public debt series over a long period of time and/or for a large number of countries (Abbas et al. 2011; Jaimovich and Panizza 2010; Panizza 2008). Some others compile databases featuring the composition of government debt and provide data on contingent liabilities, revenues, and government investment and consumption for more limited country and time coverage.4 Others construct datasets that cover historical series of …scal ‡ow and stock indicators, but again with relatively limited country coverage (Mauro et al. 2015; Reinhart and Rogo¤ 2009). Although the literature contains multiple measures of …scal space, no database systematically brings together these measures for a large number of countries. Our paper aims to …ll this gap. Speci…cally, our database expands on previous studies in two critical dimensions. First, it includes a 1 Auerbach and Gorodnichenko (2013) and Huidrom et al. (2016) …nd that …scal multipliers tend to be larger when …scal space is wider. 2 This is also the de…nition used by Ghosh et al. (2013) and Nerlich and Reuter (2015). Park (2012) de…nes …scal space as revenue generating capacity which is the di¤erence between current tax revenues and the maximum level that is estimated in a model. Aizenman and Jinjarak (2012) use de facto …scal space, which is inversely related to tax-years needed for public debt to be repaid. 3 We present a list of these studies in Supplementary Appendix Table A1. 4 For studies on government debt, see Arslanalp and Tsuda (2014a, 2014b) and Cowan et al. (2006). For databases on government revenues, see Mansour (2014) and Prichard, Cobham, and Goodall (2014); for databases on government investment and consumption, see Ilzetzki, Mendoza, and Végh (2013). For …scal consolidation data, see Guajardo, Leigh, and Pescatori (2014); for contingent liabilities, see Bova et al. (2016); for private debt data, see Bernardini and Forni (2017). 2 wide range of indicators that go beyond simple measures of solvency. These consist of 28 indicators covering four broad aspects: government debt sustainability, balance sheet composition, external and private sector debt, and market perception of sovereign risk. These aspects materially a¤ect the availability of …scal space. For example, a higher share of short-term and foreign currency debt could raise rollover and exchange rate risks, respectively. A high share of nonresident holdings of government debt may imply liquidity risk as well as currency risk in the event of con…dence losses among foreign investors. The maturity pro…le of debt is important since debt principal coming due often constitutes an important portion of an economy’ s upcoming …nancing needs, and a bunching of maturities can constrain …scal space. Market participants’perceptions of sovereign risk re‡ ect and, in turn, in‡ uence an economy’ s ability to tap markets and service its obligations. The second innovative characteristic of our database is its wide country coverage. It contains data for up to 200 economies over the period 1990-2016. For most of the indicators, it relies on mul- tiple cross-country sources. In Section 2, we describe indicators for government debt sustainability; balance sheet composition; external and private sector debt; and market perception. To facilitate cross-country comparisons, we look separately at advanced economies, and emerging market and developing economies (EMDEs)— the former contains 41 economies and the latter 159 economies.5 In Section 3, we …rst analyze the basic features of the …scal space indicators. Simple correlations across indicators support their division into four groups, in that cross-indicator correlations are on average considerably larger within than across groups. We then describe the evolution of …scal space since 2000. Our …ndings indicate widespread improvements in …scal space before the global …nancial crisis. For example, most indicators improved in more than half of advanced economies, and virtually all improved in more than half of EMDEs. However, mounting domestic contingent liabilities were a warning sign during this period. In advanced economies, following severe deteriorations during the crisis, many indicators of …scal space have virtually returned to levels in the mid-2000s. In contrast, …scal positions have worsened sharply in EMDEs since the crisis. Both the pre-crisis improvements and post-crisis deteriorations have been particularly marked among commodity-exporting EMDEs, in line with the pre-crisis run-up and post-crisis slide in commodity prices. In Section 4, we provide two more applications to illustrate the potential use of our database. We …rst analyze the behavior of …scal space during …nancial crises. Financial crises tend to coincide with a signi…cant deterioration in multiple indicators of …scal space, including …scal debt sustainability and, to a lesser extent, sovereign credit ratings. Crises are often followed by reduced reliance on short-term borrowing. We then examine the behavior of …scal space in energy-exporting EMDEs during oil price plunges. Collapses in oil prices also coincide with shrinking …scal space. These episodes are typically followed by a rebound in indicators of …scal space, often as a result of procyclical …scal tightening and, in some episodes, a recovery in oil prices. In Section 5, we provide a short summary of our …ndings and discuss possible research directions. 5 Countries are included in the database if data are available in any one of 28 indicators. Since country coverage does not always overlap between indicators, data are available up to 200 countries. While there are some countries for which only one indicator is available, the average number of available indicators per country is 19. 3 2 Database 2.1 Data Sources In order to ensure quality and consistency, most series are obtained from databases maintained by international organizations in cooperation with national statistical agencies, using harmonized methodologies. Our data sources include four databases maintained by the World Bank: the World Development Indicators (WDI); International Debt Statistics (IDS); Quarterly External Debt Statistics (QEDS); and Quarterly Public Sector Debt (QPSD). We also employ four databases managed by the IMF— the World Economic Outlook (WEO); International Financial Statistics (IFS); World Revenue Longitudinal Dataset; and Government Financial Statistics. For some of the data series, information is gathered from the Joint External Debt Hub (JEDH)— a joint initiative by the World Bank, Bank for International Settlements (BIS), IMF, and Organisation for Economic Cooperation and Development (OECD)— and databases provided by the BIS, OECD, Bloomberg, J.P. Morgan, and Arslanalp and Tsuda (2014a, 2014b). We provide details of these sources in Table 1. 2.2 Country and Time Coverage The database contains annual data for up to 200 economies from 1990 to 2016 in an unbalanced panel. It is nearly balanced since mid-2000 when data become available for a wider range of countries. Countries are classi…ed into two groups (see Table 2 for details)— 41 advanced economies, and 159 EMDEs. The latter group is further classi…ed into commodity exporters and importers, by applying the classi…cation criteria used in World Bank (2017a). As a result, there are 91 commodity- exporting EMDEs and 68 commodity-importing EMDEs. Out of 91 commodity exporters, 36 EMDEs are considered energy exporters. 2.3 Indicators of Fiscal Space 2.3.1 Government Debt Sustainability Measures of debt sustainability and …scal balance refer to the longer-run capacity of the govern- ment to …nance its obligations. The set of indicators of government debt sustainability consists of twelve variables. The …rst three are available in, or can be computed from, the WEO dataset and QPSD database: general government gross debt and general government (primary and overall) net lending/borrowing in percent of GDP. The longer-run viability of actual budgets may be gauged from the cyclically-adjusted balance, de…ned as the di¤erence between cyclically-adjusted revenues and cyclically-adjusted expenditures. The cyclically-adjusted balance is de…ned as: ( rev 1) ( xp 1) cb = rev (1 + ogap) xp (1 + ogap) (1) where cb is the cyclically-adjusted balance expressed in percent of potential GDP; rev and xp are revenues and expenditures in percent of GDP; and ogap is the di¤erence between actual and potential output in percent of potential output (de…ned as the Hodrick-Prescott-…ltered trend). We assume that an output gap elasticity of revenues, rev , is one and an output gap elasticity of expenditures, xp , is close to zero, speci…cally 0.1. When sub-components are aggregated, the 4 elasticity of revenues to the output gap tends to be close to one, whereas most expenditures, except for bene…ts of a cyclical nature, are little correlated with output gaps (Fedelino, Ivanova, and Horton 2009). The cyclically-adjusted balance de…ned in equation (1) di¤ers from a typical structural balance in its exclusion of one-o¤ temporary expenditures (Bornhorst et al. 2011). Since our objective is to provide comparable de…nitions for as broad a set of countries as possible, these country-speci…c, one-o¤ adjustments are not taken into consideration. In many EMDEs, institutional weaknesses in the tax collection systems constrain the govern- ment’s ability to service debt, even when debt ratios are moderate by the standards of advanced economies (Aizenman and Jinjarak 2012). Realized tax collection or the size of the tax base may provide a better gauge of a government’ s ability to service its debt than GDP. Hence, we calculate an additional pair of debt and …scal balance indicators, as a percent of long-term average (since 1990) government tax revenues. The sustainability of government debt depends, not only on debt and de…cits, but also on growth and borrowing cost. Fiscal sustainability gaps are indicators for the pressures that could emerge from large …scal de…cits accumulating over time to unsustainable debt stocks, even when initial stocks are modest. These gap indicators provide a simple snapshot of the adjustments that may be needed to reach debt targets under di¤erent macroeconomic conditions (Buckle and Cruickshank 2013). Ley (2009) and Escolano (2010) outline the concept of sustainability that underlies the de…nition of this gap measure. The …rst of these indicators that we compute is the overall …scal balance sustainability gap (fbsusgap ): f bsusgap = b d (2) 1+ where represents nominal output growth and b the overall …scal balance (in percent of GDP). The last term of equation (2) shows the overall …scal balance that stabilizes the stock of debt (in percent of GDP) targeted at d . A positive gap indicates a …scal balance that would diminish government debt, if sustained, over time, while a negative gap indicates a …scal balance that would increase the stock of debt over time. Nominal output growth ( ) is calculated as a weighted average of percent changes in GDP expressed in local currency and in U.S. dollars at current exchange rates. The weights are de…ned as the long-term average (since 1990) share of general government debt denominated in foreign and local currency (as discussed in Section 2.3.2). For countries missing data on the currency composition of government debt, the median ratio of peer countries (advanced economies and EMDEs) is applied.6 s The target debt ratio, d , is de…ned as being equal to the historical median value in an economy’ peer group (advanced economies or EMDEs). Implicitly, compared with benchmarking against each economy’ s own historical median, this approach implies more favorable debt target in economies 6 For Euro Area countries, two separate average shares are computed: before and after euro adoption. In EMDEs where the share of government debt in foreign currency is not available, the weight is computed by the share of government debt held by nonresidents as a proxy. The median share of foreign currency-denominated government debt for advanced economies is 1.5 percent (based on 17 countries). For Euro Area countries, the median share is 17 percent before euro adoption (6 countries) and 2.1 percent after euro adoption (12 countries). The median share for EMDEs is 42 percent (based on 45 countries). 5 with debt below the peer-group median and less favorable debt target in economies with debt above the peer-group median. The target (and median) debt ratios for advanced economies and EMDEs are, respectively, 52.3 percent of GDP and 45.2 percent of GDP. While there is no mechanical rule to determine the threshold for “safe” levels of debt, the underlying assumption is that advanced economies tend to have a higher debt tolerance (BIS 2012). We calculate sustainability indicators for primary balances as the primary balance sustainability gap, i.e., the di¤erence between the primary balance and the debt-stabilizing primary balance (pbsusgap ) with this equation: r g i pbsusgap = p d =p d (3) 1+g 1+ where p is the primary balance (in percent of GDP), i is the nominal long-term interest rate, nominal GDP growth, r the real interest rate (de…ned as the nominal interest rate de‡ ated by the GDP de‡ ator), g real GDP growth, and d the target debt ratio (in percent of GDP). Primary balance sustainability gaps are computed with the second half of equation (3), once again calculating as a weighted average of percent changes in current local currency GDP and dollar- denominated GDP. We calculate the sustainability gap indicators under …ve di¤erent assumptions for growth rates, interest rates, and target debt ratio as we discuss below. The derivation of the nominal long-term interest rate di¤ers across countries because of data constraints (see Table A2 for details). We derive …ve indicators using equation (3), applying country-speci…c and group-speci…c as- sumptions about input variables. The actual primary balance remains the same in all cases. We start out by calculating equation (3) using country-speci…c median values for GDP growth and interest rates over the full sample period. This is what we call the “primary balance sustainability gap under historical market conditions.” Second, by using GDP growth and interest rates at their current levels in equation (3), we obtain the “primary balance sustainability gap under current market conditions.” The third indicator within this set is the “primary balance sustainability gap under stressed conditions.”For this indicator, is de…ned as the country-speci…c sample median of nominal GDP growth minus one country-speci…c standard deviation of growth. The nominal interest rate (i) is calculated as the country-speci…c median plus one country-speci…c standard deviation. Hence, this variable shows whether the primary balance would be debt-stabilizing if conditions were to worsen sharply (but within reasonable bounds). The fourth indicator is a “primary balance sustainability gap under benign conditions”based on country-speci…c minimum interest rates and maximum growth rates. To avoid identifying extremely low interest and high growth rates, we …rst compute 10-year moving averages of interest and growth rates and de…ne minimum and maximum values from these averages. These four indicators are based on the historical country-group median debt stocks as the target debt ratio, as in the overall balance sustainability gap. Finally, we calculate an additional primary balance sustainability gap at historical conditions, by using country-speci…c median values for interest rates, GDP growth, and the target debt level. 6 2.3.2 Balance Sheet Composition Balance sheet composition may a¤ect exposures to the risks of a sudden change in …nancial market conditions. The set of indicators focuses on the structure of sovereign balance sheets, including sources of funding, currency structure and maturity pro…le. These indicators gauge the risk that sharp swings in interest rates or exchange rates, or a shut-o¤ of capital in‡ ows, might undermine liquidity or solvency. For example, concentration of short-term and foreign currency-denominated debt makes a government’ s balance sheet vulnerable to rollover and exchange rate risks, respectively, and a high share of nonresident holdings of government debt would imply liquidity risk in the event of con…dence losses among foreign investors.7 The variables included in this category are: general government debt in foreign currency in percent of total general government debt; debt securities held by nonresidents in percent of total debt securities; general government debt held by nonresidents in percent of total general government debt; concessional external debt stocks in percent of general government gross debt; sovereign debt average maturity; and central government debt maturing in 12 months or less in percent of GDP. These six variables are constructed with information collected from multiple data sources. The share of foreign currency debt over total government debt is computed from the OECD and QPSD databases. The value of debt securities held by nonresidents is reported in JEDH, which is derived from the IMF’ s bilateral portfolio investment database. The total amount of outstanding debt securities is taken from the debt securities statistics of the BIS.8 The share of government debt held by nonresidents is obtained from the QPSD database. For countries not covered by the preceding databases, the share is extracted from Arslanalp and Tsuda (2014a, 2014b), who maintain datasets documenting the sovereign investor base for advanced economies and emerging markets. Their datasets are also used to extend the main series if there are missing data points. Data on concessional …nance are available from the WDI, and expressed as a ratio to general government gross debt (from the WEO). This is a useful measure of …scal space, especially for low-income countries. The average maturity of sovereign debt is derived from two sources. Within the emerging- market debt universe, sovereign bonds denominated in foreign currency constitute a signi…cant share in many countries, and provide a vehicle for these economies to access the world’ s largest and most liquid funding pools. The average maturity of sovereign debt for EMDEs and some advanced economies is proxied by the annual average life (average time of principal repayment) of the national sub-indices of the J.P. Morgan EMBI Global index.9 For other advanced economies, the maturity 7 Similar variables are used by previous studies. The composition of advanced economies’sovereign bond investor pool is analyzed in IMF (2012), noting the risks of sudden changes in investor sentiment to exchange rate and interest rate stability, and, consequently, the possible emergence of funding gaps. Martínez Carrera and Vergara (2012) analyze the magnitude of the …scal adjustment needed to restore …scal sustainability after a devaluation. Currency composition and maturity structure variables are commonly used in the literature on early warning exercises of …scal problems (Baldacci et al. 2011). 8 The series includes debt securities in the private sector but, in view of the large share of general government in portfolio debt securities liabilities, this variable can also show the balance sheet vulnerability of sovereigns. The median share of general government in the liability position of portfolio debt securities (classi…ed as in the Sixth edition of Balance of Payments Manual) is 72 percent, based on the data for 100 countries over 1990-2015. In the debt securities statistics of the BIS, data on currency decomposition of international debt securities issued by general government are also available. 9 These indices are made up of sovereign and quasi-sovereign instruments denominated in U.S. dollars. Bonds also have to comply with a strict set of rules in order to be included: they must have legal jurisdiction in a G7 economy, a minimum issue size of $500 million, a maturity of at least 2.5 years at the time of entry (and 1 year overall minimum) and they must be su¢ ciently liquid for prices to be available daily (Kim 2014). 7 pro…le of government debt is obtained from the FTSE via Bloomberg. Central government debt maturing within 12 months is sourced from Bloomberg and calculated in percent of GDP. Debt principal coming due usually constitutes the largest portion of an economy’ s upcoming …nancing needs, and may impose a constraint on a government’ s ability to raise new money to …nance the current budget de…cit. 2.3.3 External and Private Sector Debt The group of external and private sector debt indicators includes measures of the size and composi- tion of a country’s total external debt, their relation to foreign exchange reserves and the liabilities of the private sector. The variables in this category are: total external debt stocks in percent of GDP; external debt in foreign currency in percent of total external debt; private external debt stocks in percent of GDP; domestic credit to the private sector in percent of GDP; short-term external debt stocks in percent of total external debt stocks; short-term external debt stocks in percent of total reserves; total external debt stocks in percent of total reserves; and total external debt stocks in percent of reserves excluding gold. Private sector debt (domestic and external) has the potential to impact …scal sustainability if explicit or implicit bailout guarantees create contingent liabilities, which would oblige governments to assume private liabilities in the event of the failure of the borrower (Cebotari 2008). The costs associated with such interventions would rise with the overall size of private sector obligations and maturity or currency mismatches. For example, one channel through which private obligations generate …scal costs is in the resolution of failing banks. This may include explicit guarantees (e.g., through deposit insurance), nationalization, recapitalizations, and the setup of asset management companies. External and (private) domestic vulnerabilities are also closely linked: when private …rms are hit by a sharp depreciation shock or an asset price collapse, currency mismatches and excessive borrowing can feed into their solvency problems (Hausmann and Panizza 2011). The most encompassing variable within this group is the share of total external debt over GDP. The data on external debt are available in the QEDS and IDS. We use the QEDS as the primary source of data and then use the IDS for countries or years not covered by the QEDS. The share of external debt in foreign currency is computed from QEDS. Likewise, the share of short-term debt in total external debt is based on the QEDS and IDS. The share of private external debt over GDP is calculated as the di¤erence between a country’ s gross external debt position and public sector external debt position in QEDS. However, the data on public sector external debt are not always available in the QEDS dataset. For those countries that do not have data for public external debt, the sum of general government and central bank external debt stocks are used, though this ignores debt of public banks and other public corporations. When the QEDS data are unavailable, the series of long-term private sector external debt stocks from IDS are reported (as IDS does not report the short-term private external debt).10 The share of domestic credit to the private sector in percent of GDP is available through the WDI and IFS, and in BIS’ s dataset of credit to the non-…nancial sector. It refers to the sum of commercial banks’and other …nancial corporations’claims on the non-…nancial private sector (and, for some countries, on public enterprises too). Rising levels of private debt may re‡ ect …nancial 10 Because of di¤erent de…nitions of private external debt between QEDS (which includes both short and long-term private debt) and IDS (which includes only long-term private debt), cross-country comparisons of these series require caution. The database explains the sources of external debt data in each country. 8 deepening or unsustainable credit booms; in practice and in real time, these two causes of rising debt are often impossible to disentangle. Regardless of the underlying causes for high or rising private debt, the full amount of private debt risks, under stress conditions, to impose …scal cost. The last three variables in this group capture aspects of a country’s reserve adequacy, calculated as the ratio of short-term external debt over reserves, the ratio of total external debt over reserves, and the ratio of total external debt over foreign exchange reserves excluding gold. 2.3.4 Market Perception Our dataset includes market perception indicators on a country’ s ability to roll over debt, or to issue new debt, and on its market cost of borrowing. Market participants’perceptions of sovereign risk re‡ect and, in turn, shape an economy’ s ability to tap markets and service its obligations. Market perception indicators can serve as high-frequency proxies for …scal sustainability. They are often available when timely information on macroeconomic fundamentals is not. The variables included are the 5-year sovereign CDS spread and foreign currency long-term debt ratings by major international rating agencies. The …rst indicator, the sovereign CDS spread, is taken from Bloomberg and J.P. Morgan and monitors investor sentiment about sovereign credit risk.11 Our second variable is an annual average of foreign currency long-term sovereign debt ratings by Moody’ s, Standard & Poor’ s, and Fitch Ratings, which are available in Bloomberg on a daily basis. As rating agencies clearly state that rating stability is among their objectives, sovereign ratings provide an alternative perspective of investor sentiment to high-frequency market indicators. Credit rating agencies base their sovereign ratings on a combination of economic, institutional, and political factors in order to assess an issuer’s creditworthiness based not only on its ability, but also on its willingness to pay. Sovereign ratings are ultimately determined by a wider range of indicators than those included in the database, but there is signi…cant overlap in evaluation of risk factors a¤ecting public …nances. Ratings of each agency are converted to a numerical scale to construct an index. We assign 1 to the worst rating and 21 to the best one and then take a simple average of three ratings. 3 Main Features of Fiscal Space This section …rst brie‡y presents the main features of the indicators of …scal space. We then analyze the evolution of …scal space over time. 3.1 Comovement, Volatility and Size Comovement. Our allocation of …scal space indicators into four distinct groups is supported by cross-indicator correlations. Within each group, the correlations across the various individual indicators are considerably larger on average, and a larger number of them are signi…cant, than across groups. For example, the 66 correlations between the twelve indicators within the debt sustainability grouping average 0.58 and all the individual correlations are statistically signi…cantly di¤erent from zero (at least at the 5 percent level) (Tables 3 and A3). 11 CDS spreads tend to be cointegrated with sovereign bond yields. Both are a¤ected by factors such as counterparty and liquidity risk. The causal relationship between the two depends on speci…c market and macroeconomic conditions (IMF 2012). 9 In contrast, only a half (36 of 72) of the correlations between the indicators in the debt sustain- ability group and the balance sheet group are statistically signi…cant; on average, the correlation across these two groups is near-zero (0.09). Similarly, the cross-indicator correlations within the group of balance sheet indicators average 0.27 and those within the group of external and pri- vate sector debt average 0.42. Cross-indicator correlations for advanced economies, as well as for EMDEs, point to the distinctive information presented by these four separate groups of indicators. Volatility. The volatility of government debt sustainability indicators has declined over time but that of external and private sector debt has increased. The volatility of debt and …scal balance indicators relative to tax revenues tends to be larger than that of those relative to GDP, indicating that the former has a wider range and contains some large outliers. In most cases, variation in the volatility of …scal space indicators is larger when indicators are compared across countries than compared over time within a country (Table A4). Size. On average over the full sample, as well as separately in the 1990s and 2000s, …scal space in advanced economies has been considerably narrower than in EMDEs in most dimensions, with two critical exceptions. Government debt sustainability measures in advanced economies were weaker, and private as well as government balance sheet exposures to various risks larger (Tables 4-6). For example, since 2008, debt levels have been higher in advanced economies (66.5 percent of GDP) than in EMDEs (45.6 percent of GDP), and sovereign debt has been of shorter maturity in advanced economies. However, in two critical dimensions, advanced economies have greater …scal space than EMDEs. First, advanced economies have persistently had considerably lower debt-to-revenue ratios, possibly re‡ecting greater revenue-raising capacity and stronger institutions. Second, advanced economies owe a considerably lower share of foreign currency-denominated debt, re‡ ecting reserve currency status and more credible monetary policy frameworks. This may account for the more favorable market perception indicators for advanced economies than for EMDEs (Dell’ Erba, Hausman, and Panizza 2013). 3.2 Evolution of Fiscal Space After improving during 2000-07 from the 1990s, …scal space has shrunk around the world since the global …nancial crisis (Tables 4-6 and A5). The improving trend prior to the crisis was widely shared: virtually all indicators of …scal space expanded in more than half of EMDEs; and most indicators improved in more than half of advanced economies (Tables A6 and A7). After the crisis, however, government debt as well as …scal sustainability gaps have deteriorated in at least three- quarters of countries in the world. External and private debt stocks have also increased in more than half of all countries and perceptions of market participants have worsened. The post-crisis deterioration in …scal space was more strongly synchronized than the pre-crisis improvement. From 2007, almost half of the indicators deteriorated in at least two-thirds of the countries in the sample. As a result, …scal space in the majority of EMDEs ended 2016 narrower in most dimensions than in 2000 or 1995. This was partly mitigated by record low interest rates and high reserve bu¤ers. The broad patterns were particularly pronounced in commodity-exporting economies and in regions with predominantly commodity-exporting EMDEs. Pre-crisis improvements in …scal space. In EMDEs, and to a considerably lesser extent in advanced economies, government debt sustainability improved signi…cantly as rapid growth reduced 10 de…cits, and helped reduce debt stocks prior to the global …nancial crisis (Figure 1). Fiscal de…cits during the global slowdown of 2001 (0.7 percent of GDP in advanced economies, 2.8 percent of GDP in EMDEs) turned into surpluses by 2007 (1.8 percent of GDP in advanced economies, 1.4 percent of GDP in EMDEs). In low-income developing economies, relief initiatives such as the Heavily Indebted Poor Countries initiative and the Multilateral Debt Relief Initiative helped reduce debt burdens. These improvements helped reduce general government gross debt by 33 percentage points of GDP over 2001-07 in EMDEs, to 47 percent of GDP. Government debt in advanced economies was also stabilized at about 47 percent of GDP. By 2007, …scal positions in 90 percent of countries in the world were sustainable under current as well as, to a lesser degree (75 percent of countries), historical conditions. In advanced economies, government balance sheet indicators moved in di¤erent directions. While the share of government debt held by nonresidents increased, the foreign currency share declined and the maturity of debt became longer (Figure 2 and Table A6). External debt increased by 90 percentage points to exceed 320 percent of GDP in 2007 from the early 2000s. Domestic cur- rency liabilities dominated this growth, as the share of foreign currency-denominated external debt declined by around 10 percentage points to 53 percent. In addition, mounting domestic contingent liabilities were a warning sign of risks ahead, evidenced by the rise in private sector credit to 110 percent of GDP. In more than three-quarters of advanced economies, private sector credit rose in tandem with external debt (Table A6). In EMDEs, external debt declined. By 2007, the external debt-to-GDP ratio was below the levels of the early 2000s in three-quarters of EMDEs— but external debt had become increasingly short-term. Sovereign spreads in EMDEs became markedly smaller between 2000 and 2007 (Figure 3). In more than two-thirds of EMDEs, declining external exposures were accompanied by rising domestic private sector credit (Table A7). Post-crisis deterioration in …scal space. Since the crisis, …scal positions have deteriorated sharply in EMDEs as activity has slowed. In contrast, in advanced economies, following severe deteriorations during the 2009 global recession, most indicators of government debt sustainability have virtually returned to levels in the mid-2000s. In advanced economies, the …scal primary balance has turned into a surplus of 0.6 percent of GDP in 2016 from a de…cit of near 4 percent of GDP in 2009. Sustainability gaps have closed such that, on average and especially under current or benign conditions, debt stocks would stabilize or even slowly decline (Botev, Fournier, and Mourougane 2016). Government debt, which grew by more than 15 percentage points of GDP between 2007 and 2010, has stabilized around at elevated 70 percent of GDP (Dobbs et al. 2015). As a result of narrower …scal de…cits, …scal positions now appear to be sustainable in more than two-thirds of advanced economies at current …nancing conditions, and in more than half of advanced economies under (less benign) historical …nancing conditions. Despite these improvements since the crisis, advanced economy credit ratings remain lower than before the crisis. In EMDEs, in contrast, debt sustainability indicators have steadily deteriorated since 2011 (Figure 1). Partly as a result of steep revenue losses in commodity-exporting EMDEs, sustainability gaps and …scal de…cits have, on average, widened to 3-5 percent of GDP in 2016. Sustainability gaps in EMDEs have worsened since the pre-crisis level, and, in around three-quarters of EMDEs, …scal positions are clearly debt-increasing under current conditions (Figure 4). Government debt 11 has risen to 53 percent of GDP, on average, in 2016, exceeds 2000 levels in more than one third of EMDEs and is increasingly held by non-residents (Table A7). External debt and private sector credit have risen from 2007 levels in at least three-quarters of EMDEs. A rapid increase in private sector credit, especially for corporates, since the global …nancial crisis has been accompanied by weaker solvency and pro…tability positions (Alfaro et al. 2017). Re‡ ecting deteriorating debt sustainability, balance sheet risks and contingent liabilities, credit ratings of EMDEs have (marginally) worsened on average and, in more than half of EMDEs, have weakened since 2007. As a result of the post-crisis deterioration, most indicators of …scal space were narrower in 2016 than in the late 1990s in the majority of EMDEs. The exception is external vulnerabilities, which have been mitigated by a reserve buildup. Divergence between commodity exporters and importers. The evolution of …scal space has diverged sharply between commodity exporters and importers (Figure 5). Both the pre-crisis improvement and the post-crisis deterioration have been particularly pronounced among commodity-exporting EMDEs, in line with the cycle in commodity prices (World Bank 2017b). By 2007, sustainability gaps in excess of 5 percent of GDP set government debt on a declining path in 80 percent of commodity-exporting EMDEs. A sharp deterioration during the global reces- sion of 2009 was reversed within a year. However, since the onset of the commodity price slide in 2011, …scal sustainability gaps have steadily deteriorated, and since 2014 they have been materially below those of commodity importers. This has also been re‡ ected in a sharp deterioration in credit ratings. In commodity-importing EMDEs, the post-crisis deterioration in …scal space has been more gradual than in commodity-exporting EMDEs. On the eve of the global …nancial crisis, in 2007, public debt stocks were much higher than those of commodity exporters. Post-crisis, sustainability gaps have reverted to debt-increasing positions. Accordingly, this has contributed a decline in credit ratings, although it has been more gradual than in commodity exporters. Under current conditions, sustainability gaps were below zero (i.e., debt-increasing) in three-…fths of commodity importers in 2016. 4 How Does Fiscal Space Evolve During Periods of Financial Stress? The global …nancial crisis of 2008-09 is an exceptional episode, among many periods of …nancial stress. Past …nancial stress episodes have often been associated with …nancial crises, including collapses of currencies, acute …scal challenges, or with collapses of commodity prices for those relying heavily on commodity revenues. In this section, we …rst analyze the behavior of …scal space during di¤erent types of …nancial crises.12 We then brie‡y examine the evolution of …scal space in energy-exporting EMDEs during oil price plunges. 4.1 Fiscal Space During Financial Crises We group …nancial crises into currency crises, banking crises and government debt distress episodes following Gourinchas and Obstfeld (2012), and Laeven and Valencia (2013). Our sample of crises 12 An extensive literature discusses the impact of crises on …scal positions and the linkages between sovereign and banking sector issues during …nancial crises (Fratzscher, Mehl, and Vansteenkiste 2011; Reinhart and Rogo¤ 2009; Tagkalakis 2013). 12 covers 33 …nancial crisis episodes for advanced economies, and 160 crises for EMDEs (Table A8). We consider the behavior of a wide range of …scal space measures, including government debt sustainability, private and external debt, and market perception indicators. Fiscal debt sustain- ability in advanced economies deteriorated sharply during and in the immediate aftermath of crises, especially after banking crises (Figure 6 and Table A9). Debt sustainability. The deterioration after banking crises to some extent re‡ ects the cost of government bail-outs (Tagkalakis 2013). The average level of government debt in advanced economies was 49 percent of GDP just before a banking crisis and jumped to 66 percent of GDP afterwards. Similarly, in EMDEs, government debt surged, on average, from 37 percent of GDP to 53 percent of GDP. With rising debt, sharply widening primary de…cits and slowing growth, …scal sustainability deteriorated signi…cantly during crises. For example, the primary balance sustainability gap under current conditions in advanced economies was 3 percent of GDP before a banking crisis but worsened to -8 percent of GDP, on average, in the two years after the crisis. In EMDEs, positive sustainability gaps of 2.3 percent of GDP, which had put debt on a declining path, before a banking crisis turned into negative (debt-increasing) gaps of -2.7 percent of GDP, on average, in the two years after the crisis. Indeed, …scal positions sharply deteriorated in a year after a banking crisis with sustainability gaps of -10 percent of GDP but became debt-reducing in two years (3 percent of GDP). Balance sheet composition. Crises were often followed by reduced reliance on short-term external borrowing, in both advanced economies and EMDEs. The share of short-term external debt fell, on average, by 2-3 percentage points in the wake of banking and currency crises and debt distress in EMDEs. After a debt distress episode in EMDEs, sovereign debt maturities shortened signi…cantly more than after other types of crises. Private and external debt. During crises deleveraging that reduced private and external debt proceeded. Crises were associated with signi…cant declines in private sector credit. Prior to crises, the ratio of private sector debt-to-GDP grew on average by around 2.5 percentage points. In the two years following crises, private sector credit declined on average by 2 percentage points of GDP in EMDEs, and by 2.7 percentage points of GDP in advanced economies (and in both country groups, changes are statistically signi…cant after banking crises). Similarly, external debt also declined, or the pace of debt accumulation decelerated. In EMDEs, external debt contracted sharply after currency crises and debt distress by 3.3 percentage points of GDP, on average. In advanced economies, in contrast, external debt continued to grow after banking crises but at a slower rate. Market perception. Deteriorating sovereign debt sustainability was accompanied by statisti- cally signi…cant downgrades in credit ratings. In advanced economies, after banking and currency crises, credit ratings declined by two notches. In EMDEs, any type of …nancial crisis is, on average, associated with a decline in credit ratings by more than two notches. In advanced economies, government debt has recently been about 71 percent of GDP, a historic high, and well above the roughly 50 percent of GDP in the year before past banking and currency crises. In contrast, in EMDEs, the recent level of government debt (53 percent of GDP) has been lower than on the eve of historical debt distress episodes (73 percent of GDP) or currency crises (69 percent of GDP), although above that during banking crises (37 percent of GDP). These developments have been re‡ ected in weaker sovereign credit ratings in advanced economies, and stronger ratings than before past currency crises and debt distress in EMDEs (Figure 6). Almost 13 all indicators of …scal space currently compare unfavorably, especially in EMDEs, with the previous periods leading up to crises (Table A10). In particular, private debt is more elevated now than on the eve of the observed crises in EMDEs. Private sector credit is higher now than before previous crises. In advanced economies, private sector credit is as high as those seen before earlier crisis episodes. The share of short-term external debt is somewhat lower in advanced economies and almost the same in EMDEs, compared to those in past crises. 4.2 Fiscal Space During Oil Price Plunges Fiscal space in energy-exporting EMDEs is closely related to the behavior of oil prices, as these economies tend to heavily rely on …scal revenues from the energy sector. In some of energy- exporting EMDEs, hydrocarbon revenues account for more than half of these revenues. Collapses in oil and other energy prices can therefore force them into sharp …scal adjustment. We focus on 36 energy-exporting EMDEs and study how …scal space evolves during episodes of major oil price plunges— 1991, 1998, 2001, 2008 and 2014 (Table 2). These major collapses of global oil prices are identi…ed as nonconsecutive decline episodes in prices where an average of Brent, Dubai, and West Texas Intermediate oil prices dropped by more than 30 percent over a six-month period. Fiscal space deteriorated sharply during past oil price plunges but rebounded quickly as a result of procyclical …scal tightening and, in some cases, a recovery in oil prices (Figure 7; Danforth, Medas, and Salins 2016). Prior to past oil price plunges, energy-exporting EMDEs had highly favorable debt sustainability indicators: primary surpluses were accompanied by positive sustainability gaps and government debt was on a declining path. Fiscal positions signi…cantly worsened during and in the immediate aftermath of oil price collapses as primary surpluses turned into de…cits and government debt was set on a …rmly rising trajectory (Table A11). Within three years after the plunges, however, sustainability gaps returned to being debt- reducing and were restored close to the pre-plunge levels. Sovereign debt maturities shortened only marginally. Despite the deterioration in …scal positions, the adverse impact on sovereign ratings was small. External debt rose during oil price plunges but stabilized quickly. The rebound in indicators of …scal space was often as a result of procyclical …scal tightening and, in some episodes, a recovery in oil prices. Compared to these earlier oil price plunges, energy-exporting EMDEs entered the most recent plunge of 2014 with lower government debt but underwent a sharper deterioration in …scal positions than in previous plunges. 5 Conclusion We present a new, comprehensive, cross-country database of …scal space for up to 200 countries over the period 1990-2016. Drawing on a wide range of sources, we bring together 28 indicators of …scal space that are grouped into four broad categories: government debt sustainability, balance sheet composition, external and private sector debt, and market perception of sovereign risk. Each of these categories covers a di¤erent dimension of …scal space. After describing the data sources and methodology employed to construct our indicators, we analyze the basic features of …scal space indicators. Simple correlations across indicators lend sup- port to our four-part categorization: the cross-indicator correlations are considerably larger within groups than across groups. We then analyze the evolution of …scal space since 2000. There were signi…cant improvements during the 2000s, but this was followed by a shrinkage of …scal space 14 around the world since the global …nancial crisis. Speci…cally, …scal space has shrunk in many emerging market and developing economies since the global …nancial crisis, although it remains larger than during the late 1990s. In contrast, in advanced economies, most indicators of govern- ment debt sustainability have virtually returned to levels in the mid-2000s. We also examine how …scal space evolves during …nancial crises and oil price plunges. Financial crises coincide with a deterioration in multiple indicators of …scal space but are often followed by reduced short-term borrowing. Although …scal space worsens during oil price plunges, indicators of government debt sustainability typically rebound close to pre-plunge levels within three years, partly as a result of procyclical …scal tightening and recovering oil prices. Fiscal space is a multi-dimensional concept at the heart of often contentious policy debates. Our cross-country database provides a source to analyze a broad set of …scal space measures for informed debate about policy options. Our …ndings also suggest promising avenues for future research. For example, it would be useful to analyze which dimensions of …scal space are most relevant in assessing the e¤ectiveness of …scal policy. Another interesting question is on the relative importance of determinants of market perception indicators in di¤erent country groups. Speci…cally, it would be useful to undertake an empirical study of the role of revenue raising capacity, institutional quality, and other possible factors in explaining di¤erences in market perception indicators of di¤erent country groups. 15 References [1] Abbas, S. M. A., N. Belhocine, A. El-Ganainy, and M. Horton. 2011. “Historical Patterns and Dynamics of Public Debt— Evidence from a New Database.” IMF Economic Review 59 (4): 717–742. [2] Abbas, S. M. A., and J. E. 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Leaning against the Wind: Fiscal Policy in Latin America and the Caribbean in a Historical Perspective. April. Washington, DC: World Bank. 19 Figure 1. Debt sustainability indicators A. Primary balance B. Fiscal balance (percent of GDP) (percent of GDP) 4 2 2 0 0 -2 -2 -4 -4 -6 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 C. General government gross debt gap, primary balance D. Sustainability gap, (percent of GDP) conditions, percent of GDP) (current conditions, 90 6 80 3 70 0 60 -3 50 -6 40 -9 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 E. Fiscal balance F. General government gross debt (percent of average tax revenues) (percent of average tax revenues) 20 700 600 0 500 400 -20 300 -40 200 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 All countries Advanced economies EMDEs Note: Simple averages. The year of global recession (2009) is shaded in gray. The numbers for 2016 are estimates. E.F. Countries with extremely high ratios are excluded. 20 Figure 2. Balance sheet and external and private debt indicators A. General government debt held by nonresidents B. Sovereign debt average maturity (percent of total) (years) 50 12 45 10 40 8 35 30 6 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 C. Total external debt stocks D. External debt in foreign currency (percent of GDP) (percent of total) 500 100 400 80 300 60 200 40 100 0 20 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 Short- E. Short-term external debt stocks F. Domestic credit to private sector (percent of total) (percent of GDP) 50 140 40 110 30 80 20 50 10 20 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 All countries Advanced economies EMDEs Note: Simple averages. The year of global recession (2009) is shaded in gray. Data are not presented in some years, because data are not available or the sample size is smaller than in the other years. 21 Figure 3. Market perception indicators 5-year dollar sovereign CDS spreads A. 5- Long-term sovereign debt ratings B. Long- (basis points) (index ranging from 1 to 21 [best]) 500 21 400 19 17 300 15 200 13 100 11 0 9 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 All countries Advanced economies EMDEs Note: Simple averages. The year of global recession (2009) is shaded in gray. A. Countries with extremely high spreads are excluded. Due to the small sample size, the data for advanced economies up to 2002 are not presented. B. The sovereign debt ratings are converted to a numerical scale ranging from 1 to 21 (higher, better rating). The horizontal line is the border between investment grade (above the line) and non-investment grade (below the line). 22 Figure 4. Primary balance sustainability gaps Average by indicator (percent of GDP) A. Advanced economies B. EMDEs 10 10 5 5 0 0 -5 -5 -10 -10 2003-07 2010-16 2003-07 2010-16 Country-specific Historical Current Stressed Benign Share of countries with negative sustainability gap (percent of countries) C. Advanced economies D. EMDEs 100 100 75 75 50 50 25 25 0 0 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 Country-specific Historical Current Stressed Benign Note: A positive gap indicates a primary balance that would diminish government debt, if sustained, over time, while a negative gap shows a primary balance that would increase the stocks of debt. Sustainability gap indicators are computed under five different assumptions for GDP growth rates, interest rates, and target debt ratio. (1) Under country-specific conditions, a sustainability gap is based on country-specific median values in GDP growth rate, interest rate, and debt ratio. (2) Under historical conditions, country-specific median GDP growth and interest rates and median debt ratio by country group (advanced economies and EMDEs) are used. (3) A sustainability gap under current conditions is computed with contemporaneous values in GDP growth and interest rates and medina debt ratio by country group. (4) Stressed conditions are defined as country-specific median GDP growth minus one country-specific standard deviation, country-specific median interest rate plus one country-specific standard deviation, and country-group median debt ratio. (5) A sustainability gap under benign conditions is computed with maximum GDP growth and minimum interest rates based on 10-year moving averages and country-group median debt ratio. A.B. Period average sustainability gaps in respective country groups. Lines in gray show the interquartile range. C.D. Share of countries in respective groups with negative sustainability gap in respective years (in percent). Data availability varies by year and indicator but they cover at most 35 advanced economies and 72 EMDEs. The year of global recession (2009) is shaded in gray and the numbers for 2016 are estimates. 23 Figure 5. Fiscal space indicators, by EMDE commodity exporter status A. General government gross debt gap, primary balance B. Sustainability gap, (percent of GDP) conditions, percent of GDP) (current conditions, 90 10 5 70 0 50 -5 30 -10 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 C. Sovereign debt average maturity D. Total external debt stocks (years) (percent of GDP) 13 90 11 70 9 50 7 30 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 E. Domestic credit to private sector Long-term sovereign debt ratings F. Long- (percent of GDP) (index ranging from 1 to 21 [best]) 60 11 50 40 10 30 20 10 9 2000 02 04 06 08 10 12 14 16 2000 02 04 06 08 10 12 14 16 Commodity exporters Commodity importers Note: Simple averages. The commodity exporter status is based on the criteria used in World Bank (2017a). The year of global recession (2009) is shaded in gray. A.B. The numbers for 2016 are estimates. F. The sovereign ratings are converted to a numerical scale ranging from 1 to 21 (higher, better rating). 24 Figure 6. Fiscal space around crisis episodes Advanced economies EMDEs gap, primary balance (current conditions, A. Sustainability gap, conditions, percent of GDP) 4 5 0 0 -4 -5 -8 -10 -12 -15 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 Long-term sovereign debt ratings (index ranging from 1 to 21 [best]) B. Long- 20 12 19 10 18 8 17 6 16 4 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 Short-term external debt stocks (percent of GDP) C. Short- 43 16 41 14 39 12 37 35 10 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 Banking crises Currency crises Debt distress Current period (t = 2016) Note: Simple averages. Crisis episodes are based on Gourinchas and Obstfeld (2012) and Laeven and Valencia (2013). In any country, when consecutive crises are identified within the next five years, the one associated with the lowest real GDP growth is used. For the full list of crisis episodes used in the figure, refer to Table A8. Due to the small sample size, the aggregate numbers for advanced economies in the case of debt distress episodes are not presented. B. The sovereign ratings are converted to a numerical scale ranging from 1 to 21 (higher, better rating). C. Due to the small sample size, the aggregated data for advanced economies in currency crisis episodes are not presented. 25 Figure 7. Fiscal space during oil price plunges A. General government gross debt B. Sustainability gap, primary balance (percent of GDP) conditions, percent of GDP) (current conditions, 80 20 60 10 40 0 20 0 -10 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 C. Sovereign debt average maturity D. Total external debt stocks (years) (percent of GDP) 17 80 15 60 13 11 40 9 7 20 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 E. Domestic credit to private sector Long-term sovereign debt ratings F. Long- (percent of GDP) (index ranging from 1 to 21 [best]) 50 15 40 13 30 11 20 9 10 0 7 t-3 t-2 t-1 t t+1 t+2 t+3 t-3 t-2 t-1 t t+1 t+2 t+3 Past oil price plunges Interquartile range Latest plunge (t = 2014) Note: Simple averages. Oil price plunges are episodes where global oil prices dropped significantly over a short period of time and include 1991, 1998, 2001, 2008, and 2014. Data are not presented in some years, because data are not available or the sample size is smaller than in the other years. F. The sovereign ratings are converted to a numerical scale ranging from 1 to 21 (higher, better rating). The horizontal line is the border between investment grade (above the line) and non-investment grade (below the line). 26 Table 1. Variable list, sources and data coverage Coverage Variable Sources Obs. Country Year Government debt sustainability General government gross debt (percent of GDP) IMF; World Bank 3,907 186 1990-2016 Primary balance (percent of GDP) IMF 4,191 184 1990-2016 Cyclically-adjusted balance (percent of potential GDP) Authors' calculations 3,610 153 1990-2016 Fiscal balance (percent of GDP) IMF 4,374 191 1990-2016 General government gross debt IMF; OECD; World Bank 3,868 182 1990-2016 (percent of average tax revenues) Fiscal balance (percent of average tax revenues) IMF; OECD 4,342 187 1990-2016 Sustainability gap, fiscal balance (percent of GDP) Authors' calculations 4,352 191 1990-2016 Sustainability gap, primary balance, country-specific conditions Authors' calculations 2,476 107 1990-2016 (percent of GDP) Sustainability gap, primary balance, historical conditions Authors' calculations 2,476 107 1990-2016 (percent of GDP) Sustainability gap, primary balance, current conditions Authors' calculations 1,961 107 1990-2016 (percent of GDP) Sustainability gap, primary balance, stressed conditions Authors' calculations 2,476 107 1990-2016 (percent of GDP) Sustainability gap, primary balance, benign conditions Authors' calculations 2,476 107 1990-2016 (percent of GDP) Balance sheet composition General government debt in foreign currency OECD; World Bank 505 48 1990-2016 (percent of total) 1/ Debt securities held by nonresidents (percent of total) JEDH; BIS 640 43 2001-2016 General government debt held by nonresidents Arslanalp and Tsuda (2014a, 893 73 1995-2016 (percent of total) 1/ 2014b); World Bank Concessional external debt stocks IMF; World Bank 2,211 121 1990-2015 (percent of general government gross debt) Sovereign debt average maturity (years) Bloomberg; J.P. Morgan 1,132 89 1993-2016 Central government debt maturing in 12 months or less Bloomberg; IMF 795 146 2011-2016 (percent of GDP) External and private sector debt Total external debt stocks (percent of GDP) IMF; World Bank 3,727 170 1990-2016 External debt in foreign currency (percent of total) World Bank 391 39 1998-2016 Private external debt stocks (percent of GDP) IMF; World Bank 3,727 170 1990-2016 Domestic credit to private sector (percent of GDP) BIS; IMF; World Bank 4,636 185 1990-2016 Short-term external debt stocks (percent of total) World Bank 3,785 170 1990-2016 Short-term external debt stocks (percent of reserves) IMF; World Bank 3,597 164 1990-2016 Total external debt stocks (percent of reserves) IMF; World Bank 3,598 164 1990-2016 Total external debt stocks (percent of reserves excluding gold) IMF; World Bank 3,599 164 1990-2016 Market perception 5-year sovereign CDS spreads (basis points) Bloomberg; J.P. Morgan 930 71 1997-2016 Foreign currency long-term sovereign debt ratings Bloomberg 2,786 148 1990-2016 (index ranging from 1 to 21 [best]) Note: Year coverage differs by country in each variable. 1/ Data cover public sector, instead of general government, for Kenya and Uganda. 27 Table 2. Country coverage and groups Advanced economies (41) Andorra; Australia; Austria; Belgium; Canada; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hong Kong SAR, China; Iceland; Ireland; Isle of Man; Israel; Italy; Japan; Korea, Rep.; Latvia; Liechtenstein; Lithuania; Luxembourg; Macao SAR, China; Malta; Netherlands; New Zealand; Norway; Portugal; Puerto Rico; San Marino; Singapore; Slovak Republic; Slovenia; Spain; Sweden; Switzerland; United Kingdom; United States Emerging market and developing economies (EMDEs) (159) Commodity exporters (91) Energy exporters Albania; Algeria; Angola; Azerbaijan; Bahrain; Bolivia; Brunei (36) Darussalam; Cameroon; Chad; Colombia; Congo, Rep.; Ecuador; Equatorial Guinea; Gabon; Ghana; Indonesia; Iran, Islamic Rep.; Iraq; Kazakhstan; Kuwait; Libya; Malaysia; Myanmar; Nigeria; Oman; Qatar; Russian Federation; Saudi Arabia; South Sudan; Sudan; Timor-Leste; Trinidad & Tobago; Turkmenistan; United Arab Emirates; Venezuela, RB; Yemen, Rep. Other commodity Argentina; Armenia; Belize; Benin; Botswana; Brazil; Burkina exporters (55) Faso; Burundi; Central African Rep.; Chile; Congo, Dem. Rep.; Costa Rica; Cote d’Ivoire; Ethiopia; Gambia, The; Guatemala; Guinea; Guinea-Bissau; Guyana; Honduras; Kenya; Kyrgyz Republic; Lao PDR; Liberia; Madagascar; Malawi; Mali; Mauritania; Mongolia; Morocco; Mozambique; Namibia; Nicaragua; Niger; Papua New Guinea; Paraguay; Peru; Rwanda; Sao Tome & Principe; Senegal; Sierra Leone; South Africa; Sri Lanka; Suriname; Tajikistan; Tanzania; Togo; Tonga; Uganda; Ukraine; Uruguay; Uzbekistan; West Bank & Gaza; Zambia; Zimbabwe Commodity importers Afghanistan; Antigua & Barbuda; Aruba; Bahamas, The; (68) Bangladesh; Barbados; Belarus; Bermuda; Bhutan; Bosnia & Herzegovina; Bulgaria; Cabo Verde; Cambodia; Cayman Islands; China; Comoros; Croatia; Cuba; Djibouti; Dominica; Dominican Republic; Egypt, Arab Rep.; El Salvador; Eritrea; Fiji; Georgia; Grenada; Haiti; Hungary; India; Jamaica; Jordan; Kiribati; Kosovo; Lebanon; Lesotho; Macedonia, FYR; Maldives; Marshall Islands; Mauritius; Mexico; Micronesia, Fed. States; Moldova; Montenegro; Nauru; Nepal; Pakistan; Palau; Panama; Philippines; Poland; Romania; Samoa; Serbia; Seychelles; Solomon Islands; Somalia; St. Kitts & Nevis; St. Lucia; St. Vincent & the Grenadines; Swaziland; Syrian Arab Republic; Thailand; Tunisia; Turkey; Tuvalu; Vanuatu; Vietnam Note: The number of countries in each country group is in parenthesis. 28 Table 3. Correlations among indicators of fiscal space A. All countries Government debt Balance sheet External and Market sustainability composition private sector debt perception Government debt sustainability 0.58 [66,66] Balance sheet composition 0.09 0.27 [36,72] [12,15] External and private sector debt 0.06 0.25 0.42 [55,96] [38,48] [28,28] Market perception 0.11 0.26 0.27 0.58 [16,24] [11,12] [14,16] [1,1] B. Advanced economies Government debt Balance sheet External and Market sustainability composition private sector debt perception Government debt sustainability 0.74 [66,66] Balance sheet composition 0.13 0.22 [28,60] [6,10] External and private sector debt 0.10 0.18 0.45 [30,96] [23,40] [19,28] Market perception 0.22 0.16 0.15 0.52 [22,24] [6,10] [6,16] [1,1] C. EMDEs Government debt Balance sheet External and Market sustainability composition private sector debt perception Government debt sustainability 0.53 [66,66] Balance sheet composition 0.13 0.28 [38,72] [9,15] External and private sector debt 0.06 0.16 0.24 [41,96] [27,48] [24,28] Market perception 0.14 0.24 0.19 0.51 [18,24] [7,12] [11,16] [1,1] Note: Average correlation coefficients between variables in respective groups. The numbers before and after the comma in bracket are, respectively, the number of statistically significant coefficients from zero at least at the 5-percent level and the total number of individual coefficients considered. Because of differences in coefficient signs, absolute values are used to compute averages. When computing individual correlations, observations smaller than the 1st percentile and larger than the 99th percentile are excluded. Due to the potential trends in the level, indicators of government debt level (percent of GDP and percent of tax revenues) are first difference series and multiplied by negative one to make it in line with fiscal and primary balances. All the individual coefficients are presented in Table A3. 29 Table 4. Descriptive statistics of fiscal space, all countries All countries Full period 1990s 2000-07 2008-16 All countries Full period 1990s 2000-07 2008-16 Government debt sustainability Balance sheet composition (continued) General government gross debt 58.0 63.0 64.8 49.8 Concessional external debt stocks 37.1 38.5 39.8 33.9 (percent of GDP) [49.6] [42.9] [64.7] [34.7] (percent of general government gross debt) [26.7] [25.3] [27.7] [26.1] Primary balance -0.7 -2.1 0.9 -1.2 Sovereign debt average maturity 9.5 12.6 9.3 9.0 (percent of GDP) [13.4] [23.3] [6.7] [6.2] (years) [4.7] [5.5] [4.9] [4.2] Cyclically-adjusted balance -2.5 -4.1 -1.1 -2.6 Central government debt maturing in 6.7 ... ... 6.7 (percent of potential GDP) [12.0] [20.5] [5.9] [5.2] 12 months or less (percent of GDP) [7.7] [...] [...] [7.7] Fiscal balance -2.4 -4.4 -0.9 -2.3 (percent of GDP) [13.5] [22.7] [7.4] [7.2] External and private sector debt General government gross debt 497.0 588.0 588.8 371.4 Total external debt stocks 99.1 74.7 97.4 119.6 (percent of average tax revenues) [1,171.8] [1,274.8] [1,559.5] [561.6] (percent of GDP) [303.3] [91.6] [255.2] [423.3] Fiscal balance -9.9 -56.7 16.8 0.5 External debt in foreign currency 80.6 95.0 86.5 78.0 (percent of average tax revenues) [364.8] [532.2] [276.6] [268.9] (percent of total) 1/ [24.8] [10.6] [20.3] [26.1] Sustainability gap, fiscal balance 1.3 -0.2 3.8 0.3 Private external debt stocks 52.4 9.6 49.2 88.7 (percent of GDP) [14.7] [23.5] [9.0] [9.2] (percent of GDP) [297.0] [19.4] [253.7] [417.7] Sustainability gap, primary balance, country- 0.2 0.5 1.2 -1.0 Domestic credit to private sector 43.8 35.9 41.6 53.8 specific conditions (percent of GDP) [4.6] [4.4] [4.6] [4.4] (percent of GDP) [40.6] [34.9] [39.9] [44.3] Sustainability gap, primary balance, historical 0.4 0.7 1.5 -0.8 Short-term external debt stocks 16.2 12.0 17.2 18.9 conditions (percent of GDP) [4.6] [4.3] [4.6] [4.4] (percent of total) [16.5] [13.4] [17.4] [17.2] Sustainability gap, primary balance, current 0.0 -0.6 2.0 -1.4 Short-term external debt stocks 1,943.1 1,594.2 2,890.9 1,423.5 conditions (percent of GDP) [6.3] [5.5] [6.1] [6.3] (percent of reserves) [20,394.1] [15,665.6] [29,896.7] [12,215.7] Sustainability gap, primary balance, stressed -4.8 -4.0 -3.8 -6.1 Total external debt stocks 5,256.2 5,711.2 6,020.9 4,263.9 conditions (percent of GDP) [5.4] [4.8] [5.2] [5.7] (percent of reserves) [42,359.2] [37,649.0] [55,484.4] [31,893.3] Sustainability gap, primary balance, benign 2.6 2.8 3.8 1.5 Total external debt stocks 7,929.0 11,641.0 7,287.6 5,571.7 conditions (percent of GDP) [5.2] [4.8] [5.3] [5.2] (percent of reserves excluding gold) [59,726.6] [74,895.0] [65,684.4] [36,627.3] Balance sheet composition Market perception General government debt in foreign currency 26.8 10.6 12.9 33.5 5-year sovereign CDS spreads 461.4 822.9 193.6 566.7 (percent of total) [29.7] [13.2] [23.2] [30.7] (basis points) [2,962.0] [1,491.9] [304.6] [3,717.1] Debt securities held by nonresidents 3.2 ... 3.3 3.1 Foreign currency long-term sovereign debt 13.1 14.8 12.9 12.5 (percent of total) [3.6] [...] [4.0] [3.3] ratings (index ranging from 1 to 21 [best]) [5.2] [4.8] [5.3] [5.1] General government debt held by nonresidents 40.7 22.6 39.0 42.6 (percent of total) [21.6] [10.1] [21.5] [21.7] Note: Simple averages. Standard deviations are presented in bracket. 1/ Only six data points are available in 1990s. 30 Table 5. Descriptive statistics of fiscal space, advanced economies Advanced economies Full period 1990s 2000-07 2008-16 Advanced economies Full period 1990s 2000-07 2008-16 Government debt sustainability Balance sheet composition (continued) General government gross debt 58.4 57.1 50.2 66.5 Concessional external debt stocks ... ... ... ... (percent of GDP) [38.1] [30.6] [34.3] [44.5] (percent of general government gross debt) [...] [...] [...] [...] Primary balance 0.1 0.6 1.2 -1.2 Sovereign debt average maturity 7.4 7.2 7.1 7.6 (percent of GDP) [4.0] [4.2] [3.3] [4.0] (years) 1/ [2.3] [1.5] [1.9] [2.5] Cyclically-adjusted balance -1.7 -2.0 -0.9 -2.1 Central government debt maturing in 11.0 ... ... 11.0 (percent of potential GDP) [4.5] [4.8] [4.0] [4.6] 12 months or less (percent of GDP) [9.8] [...] [...] [9.8] Fiscal balance -1.5 -2.3 -0.2 -1.9 (percent of GDP) [5.2] [4.9] [4.3] [5.8] External and private sector debt General government gross debt 251.9 234.4 218.9 294.7 Total external debt stocks 326.2 81.6 258.0 381.5 (percent of average tax revenues) [199.5] [140.4] [183.5] [242.2] (percent of GDP) [750.8] [48.0] [580.4] [853.2] Fiscal balance -6.2 -7.8 -1.9 -8.5 External debt in foreign currency 51.2 90.0 68.9 42.3 (percent of average tax revenues) [23.8] [26.7] [19.0] [24.7] (percent of total) 1/ [31.5] [14.5] [30.6] [28.1] Sustainability gap, fiscal balance 1.0 0.9 3.2 -0.7 Private external debt stocks 293.8 65.9 236.6 341.2 (percent of GDP) [6.5] [5.8] [5.5] [7.3] (percent of GDP) [745.1] [49.3] [582.9] [844.9] Sustainability gap, primary balance, country- 0.2 0.6 1.3 -1.1 Domestic credit to private sector 96.6 79.4 96.1 114.9 specific conditions (percent of GDP) [4.1] [4.4] [3.4] [4.1] (percent of GDP) [46.2] [38.2] [45.7] [47.4] Sustainability gap, primary balance, historical 0.4 0.7 1.5 -0.9 Short-term external debt stocks 40.8 37.9 42.5 39.9 conditions (percent of GDP) [4.1] [4.3] [3.4] [4.1] (percent of total) [16.5] [17.9] [17.7] [15.6] Sustainability gap, primary balance, current -0.1 -0.7 2.3 -1.8 Short-term external debt stocks 7,898.5 637.1 11,329.6 6,059.2 conditions (percent of GDP) [5.4] [4.5] [4.2] [6.1] (percent of reserves) [39,278.9] [1,504.9] [55,473.8] [25,133.2] Sustainability gap, primary balance, stressed -3.1 -2.7 -2.1 -4.4 Total external debt stocks 18,563.4 1,210.2 21,566.1 17,482.6 conditions (percent of GDP) [4.3] [4.4] [3.7] [4.3] (percent of reserves) [79,033.2] [1,910.6] [99,097.8] [65,348.9] Sustainability gap, primary balance, benign 2.3 2.6 3.4 1.0 Total external debt stocks 24,579.6 1,424.9 28,601.6 23,127.5 conditions (percent of GDP) [4.2] [4.4] [3.4] [4.2] (percent of reserves excluding gold) [98,018.7] [2,251.9] [129,324.5] [74,378.9] Balance sheet composition Market perception General government debt in foreign currency 7.4 8.6 6.6 7.7 5-year sovereign CDS spreads 257.5 190.4 13.7 346.5 (percent of total) [14.7] [11.4] [13.1] [16.5] (basis points) 1/ [2,725.8] [222.6] [21.0] [3,201.2] Debt securities held by nonresidents 3.9 ... 4.1 3.8 Foreign currency long-term sovereign debt 18.4 18.4 18.7 18.0 (percent of total) [3.8] [...] [4.3] [3.4] ratings (index ranging from 1 to 21 [best]) [3.1] [2.9] [2.6] [3.7] General government debt held by nonresidents 39.7 24.3 38.2 42.7 (percent of total) [20.8] [9.4] [20.4] [21.2] Note: Simple averages. Standard deviations are presented in bracket. 1/ Less than 10 data points are available in 1990s. 31 Table 6. Descriptive statistics of fiscal space, EMDEs EMDEs Full period 1990s 2000-07 2008-16 EMDEs Full period 1990s 2000-07 2008-16 Government debt sustainability Balance sheet composition (continued) General government gross debt 57.9 65.6 68.6 45.6 Concessional external debt stocks 37.1 38.5 39.8 33.9 (percent of GDP) [52.4] [47.2] [69.9] [30.5] (percent of general government gross debt) [26.7] [25.3] [27.7] [26.1] Primary balance -0.9 -2.8 0.8 -1.2 Sovereign debt average maturity 10.2 12.9 10.2 9.6 (percent of GDP) [14.8] [26.1] [7.3] [6.6] (years) [5.1] [5.5] [5.4] [4.7] Cyclically-adjusted balance -2.8 -4.8 -1.2 -2.7 Central government debt maturing in 5.2 ... ... 5.2 (percent of potential GDP) [13.5] [23.7] [6.3] [5.4] 12 months or less (percent of GDP) [6.1] [...] [...] [6.1] Fiscal balance -2.6 -5.0 -1.0 -2.4 (percent of GDP) [14.9] [25.6] [8.0] [7.5] External and private sector debt General government gross debt 568.0 746.7 683.1 390.5 Total external debt stocks 61.8 74.6 64.9 46.2 (percent of average tax revenues) [1,318.0] [1,505.1] [1,732.1] [614.3] (percent of GDP) [69.0] [92.0] [64.1] [35.2] Fiscal balance -10.9 -70.9 21.5 2.7 External debt in foreign currency 89.6 100.0 91.7 88.6 (percent of average tax revenues) [409.2] [603.5] [308.7] [300.1] (percent of total) 1/ [12.6] [0.0] [11.8] [12.9] Sustainability gap, fiscal balance 1.4 -0.5 3.9 0.5 Private external debt stocks 12.7 8.8 11.3 17.9 (percent of GDP) [16.1] [26.5] [9.6] [9.6] (percent of GDP) [22.6] [17.6] [18.1] [28.9] Sustainability gap, primary balance, country- 0.1 0.5 1.2 -1.0 Domestic credit to private sector 30.4 24.4 28.0 38.4 specific conditions (percent of GDP) [4.8] [4.4] [5.1] [4.6] (percent of GDP) [25.1] [22.9] [23.4] [26.6] Sustainability gap, primary balance, historical 0.4 0.7 1.5 -0.8 Short-term external debt stocks 12.3 11.6 12.1 13.1 conditions (percent of GDP) [4.8] [4.3] [5.1] [4.6] (percent of total) [12.5] [13.0] [12.1] [12.5] Sustainability gap, primary balance, current 0.0 -0.5 1.8 -1.2 Short-term external debt stocks 923.1 1,607.8 1,123.2 64.2 conditions (percent of GDP) [6.8] [6.8] [7.0] [6.4] (percent of reserves) [14,704.6] [15,775.1] [20,521.3] [236.7] Sustainability gap, primary balance, stressed -5.6 -4.7 -4.7 -7.0 Total external debt stocks 2,977.7 5,775.1 2,764.6 391.3 conditions (percent of GDP) [5.7] [4.9] [5.6] [6.0] (percent of reserves) [31,595.7] [37,910.9] [40,172.7] [986.4] Sustainability gap, primary balance, benign 2.8 2.8 4.0 1.8 Total external debt stocks 5,078.9 11,785.8 2,822.9 428.6 conditions (percent of GDP) [5.7] [5.0] [6.1] [5.6] (percent of reserves excluding gold) [49,804.9] [75,414.2] [40,180.3] [1,034.6] Balance sheet composition Market perception General government debt in foreign currency 50.2 26.2 46.4 51.1 5-year sovereign CDS spreads 585.0 903.7 272.4 739.4 (percent of total) 1/ [26.1] [17.6] [34.4] [25.3] (basis points) [3,092.2] [1,565.8] [336.0] [4,072.7] Debt securities held by nonresidents 1.0 ... 0.7 1.2 Foreign currency long-term sovereign debt 10.2 10.8 10.0 10.2 (percent of total) [1.3] [...] [0.8] [1.5] ratings (index ranging from 1 to 21 [best]) [3.6] [2.9] [3.6] [3.8] General government debt held by nonresidents 41.7 10.4 40.2 42.6 (percent of total) 1/ [22.4] [5.6] [23.3] [22.0] Note: Simple averages. Standard deviations are presented in bracket. 1/ Less than 10 data points are available in 1990s. 32 SUPPLEMENTARY APPENDIX Cross-Country Database of Fiscal Space A Cross- M. Ayhan Kose, Sergio Kurlat, Franziska Ohnsorge, and Naotaka Sugawara∗ August 2017 August This appendix contains: Table A1. Select studies on fiscal databases Table A2. Derivation of nominal long-term interest rate Table A3. Correlation coefficients among indicators of fiscal space for all countries (A), advanced economies (B) and emerging market and developing economies (EMDEs) (C). Table A4. Volatility of fiscal space indicators Table A5. Changes in fiscal space, share of countries, all countries Table A6. Changes in fiscal space, share of countries, advanced economies Table A7. Changes in fiscal space, share of countries, EMDEs Table A8. List of crisis episodes Table A9. Changes in fiscal space during financial crises, before vs after Table A10. Changes in fiscal space, pre-crisis vs current period Table A11. Changes in fiscal space over oil price plunges ∗ Kose (Development Prospects Group, World Bank; Brookings Institution; CEPR; CAMA; akose@worldbank.org); Ohnsorge (Development Prospects Group, World Bank; CAMA; fohnsorge@worldbank.org); Sugawara (Development Prospects Group, World Bank; nsugawara@worldbank.org). Kurlat was a consultant at the Development Prospects Group when the early analysis was conducted for this study. We would like to thank Carlos Arteta, Eduardo Borenzstein, Kevin Clinton, Raphael Espinoza, Raju Huidrom, Anna Ivanova, Ugo Panizza, Evis Rucaj, Marc Stocker, Carlos Végh, Dana Vorisek and seminar participants at the World Bank for valuable comments, and Graeme Littler and Praveen Penmetsa for developing the database web interface. Xinghao Gong provided excellent research assistance. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and should not be attributed to the World Bank, its Executive Directors, or the countries they represent. The database is available at: http://www.worldbank.org/en/research/brief/fiscal-space. 33 Table A1. Select studies on fiscal databases Coverage Country Period Indicators of fiscal space Abbas et al. (2011) 178 AE/EMDE 1692-2012 Central/General government debt [Fall 2013 version] Abbas and Christensen (2010) 93 LIC/EM 1975-2004 Central government domestic debt Arslanalp and Tsuda (2014a) 24 AE 2004Q1-2016Q4 General government debt 1/ [April 2017 version] Arslanalp and Tsuda (2014b) 24 EM 2004Q1-2016Q4 General government debt 1/ [April 2017 version] Bova et al. (2016) 34 AE 1990-2014 Contingent liability realizations 46 EM Bua, Pradelli, and Presbitero (2014) 40 LIC/LMC 1971-2011 Central government debt 1/ Ilzetzki, Mendoza, and Végh (2013) 20 AE 1960Q1-2007Q4 Government consumption; 24 EMDE Government investment Cowan et al. (2006) 30 AE/EMDE 1980-2006 Central government debt 1/ Jaimovich and Panizza (2010) 140 AE/EMDE 1970-2005 Central government debt Jeanne and Guscina (2006) 19 EM 1980-2002 Central government debt 1/ Mansour (2014) 41 Africa 1980-2010 Tax revenues 1/ Mauro et al. (2015) 24 AE 1800-2011 Government debt; Revenues; 31 EMDE Expenditure; Primary balance Panizza (2008) 130 AE/EMDE 1990-2007 Central/General government debt Prichard, Cobham, and Goodall (2014) 204 AE/EMDE 1980-2013 Central/General government revenues 1/ [May 2016 update] Reinhart and Rogoff (2011) 64 AE/EMDE 1791-2010 Revenues; Central government debt 1/ Note: AE, EM, EMDE, LIC and LMC refer to advanced economies, emerging markets, emerging market and developing economies, low income countries and lower-middle income countries, respectively. 1/ The database contains detailed information (e.g., composition and structure) of fiscal indicators. 34 long-term interest rate Table A2. Derivation of nominal long- 10-year government bond yield Australia; Austria; Bangladesh; Belgium; Botswana; Bulgaria; (51) Canada; Cyprus; Czech Republic; Denmark; Estonia; Fiji; Finland; France; Germany; Greece; Hong Kong SAR, China; Hungary; Iceland; India; Indonesia; Ireland; Israel; Italy; Japan; Korea, Rep.; Latvia; Lithuania; Luxembourg; Malaysia; Malta; Morocco; Myanmar; Nepal; Netherlands; New Zealand; Norway; Portugal; Romania; Saudi Arabia; Singapore; Slovak Republic; Slovenia; South Africa; Spain; Sweden; Switzerland; Thailand; United Kingdom; United States; Vanuatu 10-year government bond yield, Brazil; China; Colombia; Croatia; Egypt, Arab Rep.; Georgia; extended by U.S. 10-year Mexico; Pakistan; Peru; Philippines; Poland; Russian government bond yield plus actual Federation; Sri Lanka; Turkey; Ukraine; Vietnam J.P. Morgan EMBI Global stripped spread (16) U.S. 10-year government bond Algeria; Argentina; Armenia; Belarus; Belize; Chile; Cote yield plus actual J.P. Morgan d’Ivoire; Dominican Republic; Ecuador; El Salvador; Gabon; EMBI Global stripped spread (23) Ghana; Iraq; Jamaica; Kazakhstan; Lebanon; Nigeria; Panama; Serbia; Trinidad & Tobago; Tunisia; Uruguay; Venezuela, RB U.S. 10-year government bond Angola; Azerbaijan; Bolivia; Cameroon; Costa Rica; Ethiopia; yield plus estimated J.P. Morgan Guatemala; Honduras; Jordan; Kenya; Mongolia; EMBI Global stripped spread (17) Mozambique; Namibia; Paraguay; Senegal; Tanzania; Zambia Note: The number of countries is in parenthesis. The derivation of the nominal long-term interest rate differs across countries because of data constraints. First, it is proxied by the 10-year government bond yield for a group of 51 economies that have data available over a reasonably long period. Specifically, the 10-year bond yield is used for countries for which yield data have more observations than J.P. Morgan’s EMBI Global Stripped Spread. Because of data availability, data on 5-year government bond yields are used in Fiji, Myanmar, and Nepal, and government bond yields for Estonia cover those over 5 years. Second, there are 16 countries with an insufficient number of observations; for them, the 10-year bond yield is extended using the sum of available U.S. government bond yields and EMBI spreads, since the stripped spread is the spread over U.S. Treasury bond stripped of its collateralized flows (Kim 2014). Finally, for those countries without any 10-year bond yield data, the long-term interest rate is proxied by the sum of the U.S. 10-year government bond yield and each country’s EMBI Global Stripped Spread. The actual EMBI spread series is used for the 23 countries that have EMBI data over a long period. For 17 countries with limited availability of EMBI data, the spread is estimated as the predicted value from a fixed-effects linear regression of EMBI Global Stripped Spread on the Economist Intelligence Unit (EIU) country risk scores, using the EMDE sample. Predicted J.P. Morgan EMBI Global stripped spread is obtained in the following fixed-effects model: EMBI spread (in percent) = -15.88 + 0.413 [EIU country risk score] + u + ε, where u and ε are country fixed-effects and residuals, respectively. R2 is 0.23 and both coefficients are found to be statistically significant at the 1 percent level. The estimation is based on 758 observations and 62 EMDEs where data are available over the period of 1997-2016. 35 Table A3.A. Correlations among indicators of fiscal space, all countries Short- Total Sustainability General Central Total Short-term term Total external Foreign General Fiscal gap, primary Sustainability Sustainability Sustainability Sustainability government Debt General Sovereign government external External Private Domestic external external external debt stocks 5-year currency General Cyclically- government balance / Sustainability balance, gap, primary gap, primary gap, primary gap, primary debt in securities government Concessional debt debt maturing debt debt in external credit to debt debt debt / reserves sovereign long-term government Primary adjusted Fiscal debt / tax tax gap, fiscal country- balance, balance, balance, balance, foreign held by debt held by external debt average in 12 months stocks / foreign debt private stocks / stocks / stocks / excluding CDS sovereign debt / GDP balance balance balance revenues revenues balance specific historical current stressed benign currency nonresidents nonresidents stocks maturity or less GDP currency stocks sector total reserves reserves gold spreads debt ratings General government gross debt 1.00 (percent of GDP) [3,647] Primary balance 0.30*** 1.00 (percent of GDP) [3,488] [4,107] Cyclically-adjusted balance 0.27*** 0.81*** 1.00 (percent of potential GDP) [3,012] [3,473] [3,536] Fiscal balance 0.28*** 0.87*** 0.97*** 1.00 (percent of GDP) [3,566] [4,095] [3,535] [4,286] General government gross debt 0.80*** 0.22*** 0.20*** 0.25*** 1.00 (percent of average tax revenues) [3,572] [3,469] [3,026] [3,539] [3,613] Fiscal balance 0.18*** 0.65*** 0.72*** 0.71*** 0.25*** 1.00 (percent of average tax revenues) [3,518] [4,034] [3,505] [4,201] [3,541] [4,254] Sustainability gap, fiscal balance 0.45*** 0.70*** 0.75*** 0.80*** 0.37*** 0.58*** 1.00 (percent of GDP) [3,568] [4,066] [3,517] [4,236] [3,543] [4,182] [4,266] Sustainability gap, primary balance, country- 0.38*** 0.86*** 0.70*** 0.73*** 0.26*** 0.51*** 0.66*** 1.00 specific conditions (percent of GDP) [2,120] [2,427] [2,350] [2,425] [2,119] [2,412] [2,417] [2,427] Sustainability gap, primary balance 0.37*** 0.88*** 0.71*** 0.74*** 0.26*** 0.52*** 0.67*** 0.97*** 1.00 historical conditions (percent of GDP) [2,120] [2,428] [2,350] [2,425] [2,118] [2,412] [2,418] [2,423] [2,428] Sustainability gap, primary balance 0.51*** 0.74*** 0.57*** 0.65*** 0.37*** 0.48*** 0.87*** 0.76*** 0.77*** 1.00 current conditions (percent of GDP) [1,826] [1,921] [1,863] [1,919] [1,825] [1,913] [1,920] [1,912] [1,912] [1,921] Sustainability gap, primary balance 0.28*** 0.74*** 0.58*** 0.60*** 0.19*** 0.42*** 0.45*** 0.71*** 0.71*** 0.59*** 1.00 stressed conditions (percent of GDP) [2,109] [2,424] [2,343] [2,419] [2,107] [2,410] [2,414] [2,399] [2,399] [1,893] [2,426] Sustainability gap, primary balance 0.34*** 0.80*** 0.63*** 0.66*** 0.24*** 0.47*** 0.62*** 0.90*** 0.92*** 0.70*** 0.53*** 1.00 benign conditions (percent of GDP) [2,123] [2,427] [2,347] [2,424] [2,120] [2,409] [2,418] [2,415] [2,417] [1,909] [2,390] [2,427] General government debt in foreign 0.07 -0.05 0.06 0.08* 0.06 -0.13*** 0.11** -0.22*** -0.22*** -0.09* -0.21*** -0.21*** 1.00 currency (percent of total) [420] [424] [416] [424] [421] [424] [422] [361] [360] [351] [359] [360] [435] Debt securities held by nonresidents -0.07* 0.08** 0.12*** 0.11*** -0.04 0.11*** 0.00 0.02 -0.02 0.01 0.18*** -0.09** -0.30*** 1.00 (percent of total) [622] [617] [620] [624] [620] [617] [621] [610] [609] [594] [608] [615] [184] [626] General government debt held by -0.04 0.01 0.04 0.06 -0.01 0.04 0.01 -0.06* -0.07** -0.04 -0.12*** -0.07* 0.58*** 0.07 1.00 nonresidents (percent of total) [863] [868] [863] [868] [866] [869] [866] [800] [798] [786] [785] [802] [411] [462] [875] Concessional external debt stocks 0.10*** -0.12*** 0.02 0.03 0.09*** 0.00 -0.01 -0.17*** -0.24*** -0.17*** 0.01 -0.30*** 0.64*** -0.17 0.52*** 1.00 (percent of general government gross debt) [2,005] [2,082] [1,810] [2,121] [2,018] [2,124] [2,120] [1,141] [1,142] [905] [1,136] [1,136] [156] [82] [305] [2,165] Sovereign debt average maturity 0.18*** 0.16*** 0.05 0.06* 0.15*** 0.08*** 0.13*** 0.15*** 0.14*** 0.13*** -0.03 0.19*** 0.15** -0.12** -0.01 -0.33*** 1.00 (years) [1,037] [1,066] [1,048] [1,074] [1,035] [1,069] [1,072] [1,060] [1,059] [1,031] [1,043] [1,060] [237] [402] [586] [574] [1,108] Central government debt maturing in -0.07* 0.03 -0.12*** -0.12*** -0.06 -0.08** -0.15*** -0.04 -0.06 -0.02 0.16*** -0.09** -0.38*** 0.23*** -0.18*** -0.20*** -0.10** 1.00 12 months or less (percent of GDP) [774] [766] [700] [774] [761] [753] [769] [547] [547] [534] [542] [548] [209] [238] [382] [386] [425] [779] Total external debt stocks -0.01 0.05*** 0.05*** 0.03** 0.04** 0.03* -0.08*** 0.01 0.01 -0.01 0.13*** -0.02 -0.43*** 0.50*** 0.19*** 0.14*** -0.11*** 0.37*** 1.00 (percent of GDP) [2,730] [3,138] [2,794] [3,212] [2,748] [3,227] [3,210] [1,929] [1,929] [1,538] [1,928] [1,924] [360] [544] [767] [2,139] [1,025] [663] [3,651] External debt in foreign currency 0.08 0.07 0.03 0.03 0.05 -0.01 0.16*** 0.13** 0.12** 0.08 -0.11* 0.14** 0.63*** -0.48*** 0.05 0.33*** 0.23*** -0.25*** -0.28*** 1.00 (percent of total) [376] [379] [379] [379] [378] [379] [379] [349] [349] [338] [337] [349] [99] [146] [287] [189] [269] [194] [382] [382] Private external debt stocks -0.09*** 0.06*** 0.14*** 0.12*** -0.08*** 0.17*** -0.03 0.03 0.02 0.03 0.15*** -0.01 -0.39*** 0.51*** 0.07** -0.17*** -0.12*** 0.33*** 0.91*** -0.21*** 1.00 (percent of GDP) [2,090] [2,333] [2,166] [2,389] [2,090] [2,386] [2,385] [1,788] [1,786] [1,435] [1,778] [1,784] [341] [543] [753] [1,506] [998] [562] [2,681] [382] [2,713] Domestic credit to private sector -0.20*** 0.02 0.05*** 0.03** -0.15*** 0.05*** -0.12*** -0.05** -0.06*** -0.05** 0.20*** -0.11*** -0.61*** 0.34*** -0.25*** -0.36*** -0.32*** 0.22*** 0.30*** -0.35*** 0.54*** 1.00 (percent of GDP) [3,409] [3,858] [3,365] [3,982] [3,392] [3,950] [3,966] [2,348] [2,351] [1,860] [2,348] [2,350] [418] [588] [847] [2,078] [1,083] [740] [3,426] [379] [2,550] [4,543] Short-term external debt stocks -0.10*** 0.01 0.03 0.05*** -0.06*** 0.08*** -0.02 -0.05** -0.04* 0.01 0.05** -0.04* -0.49*** 0.29*** -0.22*** -0.39*** -0.15*** 0.26*** 0.33*** -0.35*** 0.47*** 0.58*** 1.00 (percent of total) [2,678] [3,082] [2,749] [3,143] [2,698] [3,157] [3,137] [1,929] [1,928] [1,532] [1,927] [1,924] [357] [547] [778] [2,104] [1,015] [646] [3,500] [380] [2,626] [3,359] [3,626] Short-term external debt stocks -0.03 -0.01 -0.06*** -0.03* 0.00 -0.04** -0.07*** -0.04* -0.05** -0.03 0.04 -0.07*** -0.40*** 0.39*** 0.00 -0.05** -0.01 0.06 0.45*** -0.66*** 0.40*** 0.18*** 0.28*** 1.00 (percent of reserves) [2,597] [3,007] [2,684] [3,046] [2,617] [3,059] [3,043] [1,927] [1,926] [1,530] [1,928] [1,922] [362] [555] [771] [2,014] [1,011] [637] [3,409] [382] [2,562] [3,312] [3,418] [3,451] Total external debt stocks -0.01 0.00 -0.08*** -0.05*** 0.00 -0.09*** -0.06*** -0.02 -0.03 -0.01 0.01 -0.05** -0.49*** 0.23*** 0.07* 0.01 -0.04 0.06 0.31*** -0.72*** 0.16*** 0.04** 0.12*** 0.83*** 1.00 (percent of reserves) [2,660] [3,063] [2,726] [3,119] [2,678] [3,133] [3,116] [1,927] [1,927] [1,537] [1,921] [1,922] [367] [553] [775] [2,050] [1,022] [664] [3,492] [382] [2,587] [3,387] [3,384] [3,414] [3,528] Total external debt stocks -0.06*** -0.06*** -0.09*** -0.09*** -0.03* -0.12*** -0.11*** -0.08*** -0.07*** -0.07*** -0.05** -0.08*** -0.53*** 0.14*** 0.13*** -0.01 -0.08** 0.03 0.42*** -0.71*** 0.34*** 0.16*** 0.15*** 0.69*** 0.86*** 1.00 (percent of reserves excluding gold) [2,664] [3,068] [2,731] [3,124] [2,682] [3,139] [3,121] [1,932] [1,931] [1,542] [1,926] [1,927] [367] [559] [782] [2,046] [1,028] [669] [3,483] [382] [2,577] [3,387] [3,383] [3,403] [3,515] [3,527] 5-year sovereign CDS spreads -0.11*** -0.07** -0.13*** -0.20*** -0.13*** -0.13*** -0.19*** 0.01 0.01 -0.17*** -0.32*** 0.05 0.37*** -0.15*** 0.13*** -0.10** 0.26*** 0.15*** -0.09*** 0.30*** -0.16*** -0.30*** -0.21*** -0.08** -0.05 0.00 1.00 (basis points) [881] [892] [865] [902] [870] [887] [899] [859] [857] [814] [840] [859] [205] [437] [566] [382] [702] [355] [829] [271] [822] [883] [828] [826] [830] [835] [910] Foreign currency long-term sovereign debt -0.07*** 0.08*** 0.13*** 0.18*** 0.01 0.17*** 0.05*** 0.04* 0.04* 0.03 0.23*** 0.00 -0.69*** 0.37*** -0.24*** -0.44*** -0.18*** 0.06 0.30*** -0.61*** 0.39*** 0.61*** 0.54*** 0.26*** 0.19*** 0.18*** -0.58*** 1.00 ratings (index) [2,064] [2,154] [2,027] [2,216] [2,037] [2,176] [2,207] [1,683] [1,686] [1,448] [1,677] [1,685] [339] [449] [672] [1,110] [903] [601] [1,713] [322] [1,547] [2,273] [1,678] [1,652] [1,698] [1,702] [810] [2,426] -0.117*** -0.114*** -0.114*** -0.290*** -0.402*** -0.402*** Note: *, ** and *** denote statistical significance at the 10 percent, 5 percent and 1 percent levels, respectively. The number of observations is presented in bracket below the corresponding coefficient. Observations smaller than the 1st percentile and larger than the 99th percentile are excluded. Due to the potential trends in the level, indicators of government debt level (percent of GDP and percent of tax revenues) are first difference series and multiplied by negative one to make it in line with fiscal and primary balances. 36 Table A3.B. Correlations among indicators of fiscal space, advanced economies Short- Total Sustainability General Central Total Short-term term Total external Foreign General Fiscal gap, primary Sustainability Sustainability Sustainability Sustainability government Debt General Sovereign government external External Private Domestic external external external debt stocks 5-year currency General Cyclically- government balance / Sustainability balance, gap, primary gap, primary gap, primary gap, primary debt in securities government Concessional debt debt maturing debt debt in external credit to debt debt debt / reserves sovereign long-term government Primary adjusted Fiscal debt / tax tax gap, fiscal country- balance, balance, balance, balance, foreign held by debt held by external debt average in 12 months stocks / foreign debt private stocks / stocks / stocks / excluding CDS sovereign debt / GDP balance balance balance revenues revenues balance specific historical current stressed benign currency nonresidents nonresidents stocks maturity or less GDP currency stocks sector total reserves reserves gold spreads debt ratings General government gross debt 1.00 (percent of GDP) [826] Primary balance 0.55*** 1.00 (percent of GDP) [789] [834] Cyclically-adjusted balance 0.34*** 0.77*** 1.00 (percent of potential GDP) [784] [814] [848] Fiscal balance 0.41*** 0.82*** 0.96*** 1.00 (percent of GDP) [804] [832] [844] [879] General government gross debt 0.97*** 0.54*** 0.37*** 0.41*** 1.00 (percent of average tax revenues) [811] [784] [784] [798] [815] Fiscal balance 0.38*** 0.80*** 0.93*** 0.96*** 0.42*** 1.00 (percent of average tax revenues) [797] [825] [842] [869] [797] [876] Sustainability gap, fiscal balance 0.50*** 0.77*** 0.81*** 0.89*** 0.50*** 0.86*** 1.00 (percent of GDP) [805] [829] [841] [869] [800] [864] [876] Sustainability gap, primary balance, country- 0.54*** 0.98*** 0.79*** 0.83*** 0.55*** 0.82*** 0.81*** 1.00 specific conditions (percent of GDP) [773] [816] [813] [815] [773] [813] [814] [818] Sustainability gap, primary balance 0.53*** 0.97*** 0.79*** 0.83*** 0.54*** 0.81*** 0.82*** 0.99*** 1.00 historical conditions (percent of GDP) [774] [817] [814] [816] [774] [813] [815] [818] [819] Sustainability gap, primary balance 0.71*** 0.85*** 0.65*** 0.76*** 0.70*** 0.74*** 0.90*** 0.86*** 0.87*** 1.00 current conditions (percent of GDP) [732] [760] [759] [759] [731] [759] [761] [760] [760] [765] Sustainability gap, primary balance 0.52*** 0.93*** 0.76*** 0.81*** 0.51*** 0.80*** 0.74*** 0.93*** 0.90*** 0.80*** 1.00 stressed conditions (percent of GDP) [776] [817] [814] [817] [774] [813] [814] [816] [817] [761] [819] Sustainability gap, primary balance 0.52*** 0.94*** 0.75*** 0.79*** 0.52*** 0.76*** 0.80*** 0.96*** 0.98*** 0.85*** 0.81*** 1.00 benign conditions (percent of GDP) [773] [816] [813] [814] [773] [811] [813] [816] [817] [760] [815] [818] General government debt in foreign 0.19*** 0.09 0.14** 0.18** 0.18** 0.16** 0.27*** 0.17** 0.26*** 0.21*** -0.10 0.35*** 1.00 currency (percent of total) [202] [202] [202] [202] [202] [202] [201] [202] [202] [201] [203] [201] [214] Debt securities held by nonresidents 0.01 0.11** 0.15*** 0.15*** 0.02 0.18*** 0.07 0.07 0.03 0.04 0.14*** 0.00 -0.14* 1.00 (percent of total) [452] [451] [457] [456] [451] [460] [455] [451] [451] [443] [452] [451] [159] [464] General government debt held by -0.13** -0.05 -0.09* -0.07 -0.11** -0.04 -0.01 -0.06 -0.04 -0.07 -0.25*** 0.07 0.26*** -0.01 1.00 nonresidents (percent of total) [423] [424] [426] [425] [425] [429] [424] [424] [424] [422] [425] [424] [208] [337] [439] Concessional external debt stocks … … … … … … … … … … … … … … … … (percent of general government gross debt) […] […] […] […] […] […] […] […] […] […] […] […] […] […] […] […] Sovereign debt average maturity -0.07 -0.26*** -0.36*** -0.34*** -0.04 -0.29*** -0.32*** -0.30*** -0.31*** -0.17*** -0.20*** -0.32*** -0.42*** 0.06 -0.24*** … 1.00 (years) [292] [291] [292] [292] [293] [296] [292] [291] [291] [284] [292] [291] [119] [266] [277] […] [301] Central government debt maturing in -0.09 0.04 -0.02 -0.01 -0.09 0.09 -0.02 0.01 -0.01 0.03 0.05 -0.05 -0.44*** 0.15* -0.24*** … 0.27*** 1.00 12 months or less (percent of GDP) [191] [197] [200] [198] [192] [199] [198] [198] [198] [194] [197] [198] [75] [171] [163] […] [127] [200] Total external debt stocks -0.02 0.06 0.09* 0.10** -0.03 0.09** 0.08* 0.08* 0.07* 0.07 0.10** 0.06 -0.16** 0.28*** -0.01 … 0.16*** -0.04 1.00 (percent of GDP) [499] [499] [505] [504] [499] [509] [504] [499] [499] [486] [500] [499] [169] [418] [373] […] [284] [198] [515] External debt in foreign currency 0.04 0.50*** 0.71*** 0.68*** 0.04 0.72*** 0.56*** 0.46*** 0.39*** 0.38*** 0.70*** 0.12 0.03 0.35** -0.74*** … 0.01 -0.29** 0.13 1.00 (percent of total) [89] [89] [89] [89] [89] [89] [89] [89] [89] [87] [89] [89] [26] [46] [78] […] [49] [47] [84] [89] Private external debt stocks 0.00 0.07 0.11** 0.12*** -0.01 0.12*** 0.11** 0.10** 0.09** 0.10** 0.12*** 0.07* -0.15* 0.28*** -0.07 … 0.16*** -0.04 1.00*** 0.36*** 1.00 (percent of GDP) [498] [498] [504] [503] [498] [508] [503] [498] [498] [485] [499] [498] [169] [418] [373] […] [283] [198] [514] [83] [514] Domestic credit to private sector -0.20*** -0.12*** 0.08** 0.05 -0.23*** 0.03 -0.09*** -0.13*** -0.18*** -0.17*** -0.01 -0.25*** -0.44*** 0.15*** -0.31*** … -0.08 0.34*** 0.03 0.43*** 0.03 1.00 (percent of GDP) [787] [798] [825] [840] [786] [840] [840] [798] [799] [749] [799] [798] [212] [455] [436] […] [300] [194] [503] [89] [502] [922] Short-term external debt stocks -0.03 -0.04 0.03 0.05 -0.02 0.11** 0.04 -0.03 -0.03 0.02 0.00 -0.06 0.17** 0.22*** -0.35*** … 0.21*** 0.52*** 0.18*** 0.40*** 0.20*** 0.37*** 1.00 (percent of total) [500] [500] [504] [504] [500] [508] [504] [500] [500] [488] [501] [500] [169] [413] [377] […] [287] [198] [503] [89] [502] [502] [514] Short-term external debt stocks -0.03 0.00 0.05 0.04 -0.03 0.02 0.01 0.01 0.02 0.00 0.01 0.03 -0.09 0.14*** -0.01 … 0.09 -0.16** 0.76*** -0.55*** 0.75*** 0.01 0.02 1.00 (percent of reserves) [499] [499] [504] [503] [499] [508] [503] [499] [499] [486] [500] [499] [167] [420] [377] […] [287] [197] [504] [86] [503] [502] [504] [514] Total external debt stocks -0.03 0.00 0.03 0.04 -0.05 0.01 0.02 0.01 0.02 0.01 0.01 0.03 -0.09 0.15*** -0.01 … 0.05 -0.16** 0.80*** -0.72*** 0.79*** -0.02 0.00 0.93*** 1.00 (percent of reserves) [498] [498] [504] [503] [498] [508] [503] [498] [498] [485] [499] [498] [169] [419] [376] […] [286] [198] [508] [85] [507] [502] [502] [507] [514] Total external debt stocks -0.06 -0.03 0.00 -0.01 -0.08* -0.04 -0.03 -0.02 -0.02 -0.03 -0.04 0.00 -0.13* 0.15*** 0.04 … 0.07 -0.14** 0.78*** -0.73*** 0.76*** 0.00 -0.03 0.91*** 0.99*** 1.00 (percent of reserves excluding gold) [498] [498] [504] [503] [498] [508] [503] [498] [498] [485] [499] [498] [169] [419] [376] […] [286] [198] [508] [85] [507] [502] [502] [507] [514] [514] 5-year sovereign CDS spreads -0.44*** -0.18*** -0.17*** -0.25*** -0.49*** -0.28*** -0.32*** -0.19*** -0.17*** -0.43*** -0.29*** -0.10* 0.03 -0.14** 0.19*** … -0.03 0.18** 0.19*** 0.33*** 0.11** 0.02 -0.09 0.08 0.11* 0.16*** 1.00 (basis points) [334] [336] [338] [336] [335] [338] [334] [336] [336] [327] [337] [336] [123] [295] [282] […] [229] [157] [326] [62] [326] [337] [327] [327] [324] [324] [342] Foreign currency long-term sovereign debt 0.13*** 0.23*** 0.21*** 0.22*** 0.15*** 0.24*** 0.10** 0.17*** 0.12*** 0.11** 0.30*** 0.04 -0.24*** 0.31*** -0.20*** … 0.12 0.17* -0.08 -0.47*** -0.06 0.29*** 0.11* -0.08 -0.08 -0.09 -0.52*** 1.00 ratings (index) [537] [549] [556] [582] [537] [580] [579] [535] [536] [494] [535] [536] [139] [283] [261] […] [164] [130] [319] [47] [318] [600] [317] [318] [318] [318] [246] [650] -0.117*** -0.114*** -0.290*** -0.402*** Note: *, ** and *** denote statistical significance at the 10 percent, 5 percent and 1 percent levels, respectively. The number of observations is presented in bracket below the corresponding coefficient. Observations smaller than the 1st percentile and larger than the 99th percentile are excluded. Due to the potential trends in the level, indicators of government debt level (percent of GDP and percent of tax revenues) are first difference series and multiplied by negative one to make it in line with fiscal and primary balances. 37 Correlations among indicators of fiscal space, EMDEs Table A3.C. Correlations Short- Total Sustainability General Central Total Short-term term Total external Foreign General Fiscal gap, primary Sustainability Sustainability Sustainability Sustainability government Debt General Sovereign government external External Private Domestic external external external debt stocks 5-year currency General Cyclically- government balance / Sustainability balance, gap, primary gap, primary gap, primary gap, primary debt in securities government Concessional debt debt maturing debt debt in external credit to debt debt debt / reserves sovereign long-term government Primary adjusted Fiscal debt / tax tax gap, fiscal country- balance, balance, balance, balance, foreign held by debt held by external debt average in 12 months stocks / foreign debt private stocks / stocks / stocks / excluding CDS sovereign debt / GDP balance balance balance revenues revenues balance specific historical current stressed benign currency nonresidents nonresidents stocks maturity or less GDP currency stocks sector total reserves reserves gold spreads debt ratings General government gross debt 1.00 (percent of GDP) [2,820] Primary balance 0.25*** 1.00 (percent of GDP) [2,696] [3,271] Cyclically-adjusted balance 0.27*** 0.82*** 1.00 (percent of potential GDP) [2,228] [2,657] [2,689] Fiscal balance 0.27*** 0.88*** 0.97*** 1.00 (percent of GDP) [2,765] [3,259] [2,689] [3,407] General government gross debt 0.79*** 0.23*** 0.24*** 0.27*** 1.00 (percent of average tax revenues) [2,762] [2,675] [2,232] [2,738] [2,795] Fiscal balance 0.17*** 0.60*** 0.63*** 0.67*** 0.29*** 1.00 (percent of average tax revenues) [2,727] [3,213] [2,668] [3,341] [2,740] [3,378] Sustainability gap, fiscal balance 0.44*** 0.70*** 0.75*** 0.80*** 0.40*** 0.55*** 1.00 (percent of GDP) [2,765] [3,238] [2,674] [3,366] [2,741] [3,322] [3,390] Sustainability gap, primary balance, country- 0.31*** 0.81*** 0.66*** 0.68*** 0.22*** 0.44*** 0.59*** 1.00 specific conditions (percent of GDP) [1,340] [1,607] [1,531] [1,606] [1,333] [1,595] [1,599] [1,607] Sustainability gap, primary balance 0.29*** 0.85*** 0.67*** 0.70*** 0.21*** 0.45*** 0.61*** 0.97*** 1.00 historical conditions (percent of GDP) [1,340] [1,607] [1,530] [1,605] [1,333] [1,595] [1,599] [1,606] [1,607] Sustainability gap, primary balance 0.42*** 0.68*** 0.49*** 0.56*** 0.33*** 0.40*** 0.86*** 0.71*** 0.72*** 1.00 current conditions (percent of GDP) [1,088] [1,157] [1,099] [1,156] [1,082] [1,151] [1,156] [1,152] [1,151] [1,157] Sustainability gap, primary balance 0.23*** 0.65*** 0.48*** 0.50*** 0.17*** 0.31*** 0.38*** 0.61*** 0.62*** 0.45*** 1.00 stressed conditions (percent of GDP) [1,331] [1,605] [1,524] [1,600] [1,324] [1,592] [1,598] [1,585] [1,585] [1,139] [1,606] Sustainability gap, primary balance 0.28*** 0.74*** 0.58*** 0.60*** 0.20*** 0.40*** 0.55*** 0.88*** 0.91*** 0.63*** 0.40*** 1.00 benign conditions (percent of GDP) [1,338] [1,607] [1,529] [1,604] [1,329] [1,593] [1,599] [1,601] [1,602] [1,148] [1,582] [1,607] General government debt in foreign 0.09 -0.05 0.24*** 0.28*** 0.10 0.12* 0.12* -0.39*** -0.41*** -0.23*** 0.04 -0.56*** 1.00 currency (percent of total) [212] [215] [207] [215] [213] [215] [215] [152] [152] [145] [150] [152] [215] Debt securities held by nonresidents -0.09 0.04 0.07 0.07 0.06 0.08 0.03 0.06 0.03 0.01 0.16** -0.02 0.06 1.00 (percent of total) [161] [160] [160] [161] [160] [156] [161] [155] [155] [147] [155] [158] [23] [162] General government debt held by 0.03 0.05 0.20*** 0.23*** 0.04 0.17*** 0.09** -0.09* -0.13** -0.02 0.05 -0.23*** 0.88*** -0.03 1.00 nonresidents (percent of total) [430] [434] [427] [434] [432] [434] [434] [365] [365] [356] [355] [365] [200] [118] [434] Concessional external debt stocks 0.10*** -0.12*** 0.02 0.04 0.08*** 0.00 -0.01 -0.16*** -0.24*** -0.16*** 0.03 -0.30*** 0.63*** -0.12 0.57*** 1.00 (percent of general government gross debt) [2,016] [2,084] [1,813] [2,124] [2,025] [2,124] [2,121] [1,143] [1,143] [909] [1,136] [1,139] [153] [80] [310] [2,165] Sovereign debt average maturity 0.20*** 0.28*** 0.19*** 0.21*** 0.13*** 0.16*** 0.21*** 0.23*** 0.21*** 0.18*** 0.04 0.24*** -0.12 -0.15* 0.21*** -0.33*** 1.00 (years) [738] [768] [753] [777] [734] [770] [775] [766] [766] [748] [756] [766] [112] [131] [303] [578] [807] Central government debt maturing in -0.05 -0.03 -0.24*** -0.20*** -0.03 -0.13*** -0.17*** -0.14*** -0.16*** -0.07 0.06 -0.14*** -0.29*** -0.15 -0.24*** -0.21*** -0.14** 1.00 12 months or less (percent of GDP) [577] [567] [506] [575] [564] [556] [570] [352] [352] [341] [347] [352] [130] [70] [216] [383] [294] [579] Total external debt stocks 0.12*** 0.04** -0.05** -0.07*** 0.09*** -0.07*** -0.09*** -0.02 -0.02 -0.11*** -0.01 -0.01 0.09 0.06 0.27*** 0.22*** 0.00 0.22*** 1.00 (percent of GDP) [2,256] [2,647] [2,317] [2,720] [2,264] [2,726] [2,717] [1,456] [1,456] [1,080] [1,454] [1,454] [193] [146] [411] [2,131] [749] [481] [3,136] External debt in foreign currency 0.07 0.07 0.17*** 0.15** 0.06 0.09 0.17*** 0.08 0.09 0.11* -0.05 0.09 0.54*** 0.03 0.33*** 0.33*** 0.10 -0.20** 0.11* 1.00 (percent of total) [287] [289] [289] [289] [288] [289] [289] [259] [259] [250] [250] [259] [76] [102] [209] [189] [220] [146] [292] [292] Private external debt stocks -0.07*** 0.02 0.04 0.01 -0.07*** 0.09*** -0.08*** -0.01 -0.01 -0.07** -0.05* 0.03 0.03 0.16* 0.15*** -0.17*** -0.12*** 0.12** 0.41*** 0.08 1.00 (percent of GDP) [1,594] [1,824] [1,654] [1,875] [1,592] [1,870] [1,871] [1,295] [1,295] [960] [1,284] [1,292] [167] [144] [386] [1,496] [705] [369] [2,161] [289] [2,193] Domestic credit to private sector -0.19*** 0.00 -0.06*** -0.04** -0.14*** -0.01 -0.15*** -0.09*** -0.07*** -0.08** 0.08*** -0.10*** -0.09 0.31*** -0.36*** -0.34*** -0.24*** 0.10** -0.09*** -0.28*** 0.31*** 1.00 (percent of GDP) [2,625] [3,067] [2,541] [3,140] [2,608] [3,112] [3,127] [1,557] [1,557] [1,122] [1,556] [1,557] [209] [145] [417] [2,052] [777] [543] [2,927] [289] [2,042] [3,621] Short-term external debt stocks -0.05** 0.01 -0.01 0.02 -0.02 0.02 0.04* 0.01 0.00 0.05 -0.06** 0.05* -0.15** 0.08 -0.32*** -0.38*** -0.01 0.16*** -0.03* -0.12** 0.12*** 0.30*** 1.00 (percent of total) [2,182] [2,573] [2,244] [2,632] [2,193] [2,639] [2,625] [1,429] [1,429] [1,053] [1,424] [1,426] [189] [139] [405] [2,086] [726] [449] [2,990] [292] [2,118] [2,860] [3,105] Short-term external debt stocks 0.07*** 0.05** 0.01 0.02 0.09*** -0.01 0.07*** 0.04 0.03 0.01 -0.03 0.05* -0.01 -0.07 0.11** -0.07*** 0.15*** -0.07 0.24*** 0.11* -0.05** -0.10*** 0.21*** 1.00 (percent of reserves) [2,110] [2,504] [2,184] [2,540] [2,121] [2,548] [2,537] [1,436] [1,436] [1,056] [1,435] [1,433] [189] [145] [406] [2,006] [731] [445] [2,885] [292] [2,035] [2,810] [2,903] [2,929] Total external debt stocks 0.11*** 0.02 -0.01 -0.02 0.15*** -0.05*** 0.04** 0.02 0.01 -0.07** -0.03 0.01 0.13* -0.13 0.32*** 0.01 0.22*** -0.07 0.37*** 0.16*** -0.07*** -0.19*** 0.06*** 0.80*** 1.00 (percent of reserves) [2,178] [2,568] [2,235] [2,622] [2,189] [2,630] [2,619] [1,440] [1,440] [1,068] [1,435] [1,438] [194] [146] [412] [2,049] [746] [473] [2,971] [292] [2,060] [2,891] [2,873] [2,896] [3,011] Total external debt stocks 0.09*** 0.01 -0.03 -0.02 0.13*** -0.10*** 0.00 0.01 -0.01 -0.09*** -0.04 -0.01 0.13* -0.14* 0.30*** 0.00 0.20*** -0.07 0.32*** 0.15** -0.07*** -0.17*** 0.08*** 0.72*** 0.96*** 1.00 (percent of reserves excluding gold) [2,177] [2,568] [2,234] [2,622] [2,188] [2,631] [2,620] [1,439] [1,439] [1,067] [1,434] [1,437] [194] [145] [411] [2,050] [745] [473] [2,969] [292] [2,059] [2,893] [2,873] [2,893] [3,008] [3,011] 5-year sovereign CDS spreads 0.03 -0.24*** -0.23*** -0.27*** 0.00 -0.15*** -0.15*** -0.18*** -0.15*** -0.14*** -0.34*** -0.12*** 0.52*** -0.12 0.07 -0.09* 0.14*** 0.04 0.03 0.17** -0.08* -0.25*** -0.02 0.05 0.19*** 0.30*** 1.00 (basis points) [540] [551] [527] [560] [528] [548] [559] [520] [520] [491] [505] [520] [78] [140] [282] [382] [473] [199] [509] [210] [490] [540] [493] [502] [509] [508] [567] Foreign currency long-term sovereign debt -0.06** 0.09*** 0.18*** 0.26*** 0.03 0.22*** 0.15*** 0.05* 0.05* 0.04 0.07** 0.08** -0.53*** 0.35*** -0.42*** -0.43*** -0.06* -0.13*** -0.15*** -0.45*** 0.19*** 0.47*** 0.25*** 0.02 -0.24*** -0.23*** -0.51*** 1.00 ratings (index) [1,513] [1,596] [1,468] [1,624] [1,491] [1,593] [1,622] [1,141] [1,142] [952] [1,132] [1,144] [194] [156] [408] [1,116] [743] [466] [1,409] [276] [1,217] [1,654] [1,347] [1,330] [1,382] [1,381] [556] [1,759] -0.117*** -0.114*** -0.290*** -0.402*** -0.402*** Note: *, ** and *** denote statistical significance at the 10 percent, 5 percent and 1 percent levels, respectively. The number of observations is presented in bracket below the corresponding coefficient. Observations smaller than the 1st percentile and larger than the 99th percentile are excluded. Due to the potential trends in the level, indicators of government debt level (percent of GDP and percent of tax revenues) are first difference series and multiplied by negative one to make it in line with fiscal and primary balances. 38 Table A4. Volatility of fiscal space indicators All countries Advanced economies EMDEs Cross- Within- Cross- Within- Cross- Within- Country Country Country Country Country Country Government debt sustainability General government gross debt (percent of GDP) 38.2 22.8 33.0 14.7 39.4 24.8 Primary balance (percent of GDP) 5.0 4.9 2.3 2.8 5.5 5.4 Cyclically-adjusted balance (percent of potential GDP) 4.8 4.3 3.3 2.7 5.2 4.7 Fiscal balance (percent of GDP) 5.5 5.1 4.1 3.0 5.8 5.6 General government gross debt 982.3 277.4 174.7 65.7 1,082.9 329.6 (percent of average tax revenues) Fiscal balance (percent of average tax revenues) 117.2 76.8 19.2 13.2 130.5 92.5 Sustainability gap, fiscal balance (percent of GDP) 5.7 7.2 4.8 4.4 6.0 8.0 Sustainability gap, primary balance 2.9 3.1 2.4 2.9 3.1 3.2 country-specific conditions (percent of GDP) Sustainability gap, primary balance 2.9 3.1 2.4 2.9 3.1 3.2 historical conditions (percent of GDP) Sustainability gap, primary balance 3.1 5.3 2.4 4.5 3.3 5.7 current conditions (percent of GDP) Sustainability gap, primary balance 4.2 3.1 2.8 2.9 4.5 3.2 stressed conditions (percent of GDP) Sustainability gap, primary balance 4.0 3.1 2.6 2.9 4.5 3.2 benign conditions (percent of GDP) Balance sheet composition General government debt in foreign currency 30.7 4.7 15.1 3.8 24.7 5.2 (percent of total) Debt securities held by nonresidents (percent of total) 2.8 1.6 2.9 1.9 0.9 0.8 General government debt held by nonresidents 21.2 6.5 19.6 7.4 22.1 5.9 (percent of total) Concessional external debt stocks 25.8 9.5 ... ... 25.8 9.5 (percent of general government gross debt) Sovereign debt average maturity (years) 3.7 2.0 2.0 1.0 4.0 2.4 Central government debt maturing in 7.1 1.8 9.5 1.9 5.4 1.8 12 months or less (percent of GDP) External and private sector debt Total external debt stocks (percent of GDP) 349.1 41.4 723.0 79.3 45.7 31.6 External debt in foreign currency (percent of total) 27.3 3.3 25.9 4.1 11.7 2.9 Private external debt stocks (percent of GDP) 348.3 20.4 720.4 71.5 25.5 7.1 Domestic credit to private sector (percent of GDP) 36.7 12.5 37.6 22.2 21.8 10.1 Short-term external debt stocks (percent of total) 15.6 6.8 14.5 6.8 9.2 6.9 Short-term external debt stocks (percent of reserves) 16,508.7 2,228.1 32,271.0 5,243.4 7,294.6 1,410.1 Total external debt stocks (percent of reserves) 36,494.2 5,100.0 71,384.0 8,635.2 16,011.8 4,140.8 Total external debt stocks 44,221.0 10,285.6 84,391.3 13,785.8 21,593.9 9,336.0 (percent of reserves excluding gold) Market perception 5-year sovereign CDS spreads (basis points) 1,005.4 692.4 643.8 506.7 1,190.6 831.8 Foreign currency long-term sovereign debt ratings 4.9 1.1 2.6 1.3 3.2 1.0 (index ranging 1-21 [best]) Note: Volatility is measured as standard deviation of respecitve variables in specified sample period and country group. Observations smaller than the 1st percentile and larger than the 99th percentile are excluded. 39 Table A5. Changes in fiscal space, share of countries, all countries 1995-2016 2000-07 2000-16 2007-16 Share Share Share Share ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. Government debt sustainability General government gross debt (percent of GDP) 44.7 [55.3] 85 77.7 [22.3] 157 52.6 [46.8] 156 25.8 [74.2] 182 Primary balance (percent of GDP) 62.3 [37.7] 122 41.6 [57.8] 166 66.1 [32.7] 165 75.1 [23.8] 181 Cyclically-adjusted balance (percent of potential GDP) 56.3 [41.1] 112 40.0 [55.2] 145 60.7 [39.3] 145 65.4 [33.3] 153 Fiscal balance (percent of GDP) 52.3 [45.3] 128 31.0 [66.1] 174 60.1 [38.7] 173 75.9 [21.4] 187 General government gross debt 44.7 [55.3] 85 77.7 [22.3] 157 53.2 [46.8] 156 26.1 [73.9] 180 (percent of average tax revenues) Fiscal balance (percent of average tax revenues) 53.1 [46.9] 128 32.2 [67.8] 174 61.3 [38.7] 173 78.0 [21.5] 186 Sustainability gap, fiscal balance (percent of GDP) 77.6 [22.4] 125 23.7 [75.7] 169 63.7 [34.5] 168 89.3 [10.7] 187 Sustainability gap, primary balance 61.8 [38.2] 76 43.4 [56.6] 99 69.7 [29.3] 99 78.5 [21.5] 107 country-specific conditions (percent of GDP) Sustainability gap, primary balance 61.8 [38.2] 76 43.4 [56.6] 99 69.7 [29.3] 99 78.5 [21.5] 107 historical conditions (percent of GDP) Sustainability gap, primary balance 38.7 [61.3] 31 29.2 [69.4] 72 57.7 [39.4] 71 87.1 [10.9] 101 current conditions (percent of GDP) Sustainability gap, primary balance 61.8 [38.2] 76 43.4 [56.6] 99 69.7 [29.3] 99 78.5 [21.5] 107 stressed conditions (percent of GDP) Sustainability gap, primary balance 61.8 [38.2] 76 43.4 [56.6] 99 69.7 [29.3] 99 78.5 [21.5] 107 benign conditions (percent of GDP) Balance sheet composition General government debt in foreign currency ... [...] 7 69.2 [7.7] 13 66.7 [25.0] 12 40.0 [40.0] 15 (percent of total) Debt securities held by nonresidents (percent of total) ... [...] 0 ... [...] 0 ... [...] 0 51.2 [39.0] 41 General government debt held by nonresidents ... [...] 8 30.8 [69.2] 13 15.4 [84.6] 13 45.1 [54.9] 51 (percent of total) Concessional external debt stocks 75.7 [24.3] 37 60.4 [38.5] 96 72.7 [23.2] 99 69.9 [29.2] 113 (percent of general government gross debt) 1/ Sovereign debt average maturity (years) 90.0 [10.0] 10 54.5 [45.5] 22 47.8 [52.2] 23 48.3 [51.7] 58 Central government debt maturing in ... [...] 0 ... [...] 0 ... [...] 0 32.5 [62.4] 117 12 months or less (percent of GDP) 2/ External and private sector debt Total external debt stocks (percent of GDP) 50.9 [49.1] 55 70.5 [29.5] 129 44.8 [55.2] 67 34.0 [66.0] 94 External debt in foreign currency (percent of total) ... [...] 0 ... [...] 4 ... [...] 4 56.5 [43.5] 23 Private external debt stocks (percent of GDP) 23.6 [69.1] 55 36.4 [31.8] 129 25.4 [68.7] 67 44.7 [51.1] 94 Domestic credit to private sector (percent of GDP) 7.6 [92.4] 158 25.7 [72.6] 175 16.5 [83.5] 164 24.3 [75.1] 169 Short-term external debt stocks (percent of total) 40.0 [56.4] 55 34.6 [61.5] 130 45.5 [54.5] 66 61.3 [33.3] 93 Short-term external debt stocks 55.6 [44.4] 54 62.9 [33.9] 124 62.1 [36.4] 66 59.1 [38.7] 93 (percent of reserves) Total external debt stocks (percent of reserves) 74.5 [25.5] 55 78.2 [21.8] 124 77.6 [22.4] 67 46.8 [53.2] 94 Total external debt stocks 74.5 [25.5] 55 78.2 [21.8] 124 74.6 [25.4] 67 45.7 [54.3] 94 (percent of reserves excluding gold) Market perception 5-year sovereign CDS spreads (basis points) ... [...] 0 93.3 [0.0] 15 66.7 [33.3] 15 1.9 [98.1] 53 Foreign currency long-term sovereign debt ratings 41.1 [51.8] 56 19.4 [61.2] 103 37.6 [53.5] 101 51.9 [28.7] 129 (index ranging 1-21 [best]) Note: Share shows the percent shares of countries with negative change (∆-) and with positive change (∆+) (in bracket) over the denoted periods. The percent shares are not computed, when the number of observations is less than 10. A negative (positive) change refers to a change at least by 0.1 percenrage point for variables expressed in percent (or 10 basis points for CDS spreads). For sovereign debt average maturity and long-term sovereign debt ratings, a change by 0.1 percent is used. Because of small or no change in some indicators, they do not always add up to 100. 1/ Data for 2015 are used, instead of 2016. 2/ Data for 2011 are used, instead of 2007. 40 Table A6. Changes in fiscal space, share of countries, advanced economies 1995-2016 2000-07 2000-16 2007-16 Share Share Share Share ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. Government debt sustainability General government gross debt (percent of GDP) 30.0 [70.0] 30 69.7 [30.3] 33 18.2 [81.8] 33 13.5 [86.5] 37 Primary balance (percent of GDP) 37.9 [62.1] 29 48.5 [51.5] 33 63.6 [36.4] 33 77.8 [22.2] 36 Cyclically-adjusted balance (percent of potential GDP) 32.3 [64.5] 31 55.9 [38.2] 34 50.0 [50.0] 34 51.4 [45.7] 35 Fiscal balance (percent of GDP) 22.6 [74.2] 31 38.2 [58.8] 34 55.9 [44.1] 34 78.4 [18.9] 37 General government gross debt 30.0 [70.0] 30 69.7 [30.3] 33 18.2 [81.8] 33 13.9 [86.1] 36 (percent of average tax revenues) Fiscal balance (percent of average tax revenues) 22.6 [77.4] 31 38.2 [61.8] 34 55.9 [44.1] 34 81.1 [18.9] 37 Sustainability gap, fiscal balance (percent of GDP) 51.7 [48.3] 29 35.3 [61.8] 34 67.6 [29.4] 34 91.9 [8.1] 37 Sustainability gap, primary balance 37.9 [62.1] 29 48.5 [51.5] 33 63.6 [36.4] 33 77.1 [22.9] 35 country-specific conditions (percent of GDP) Sustainability gap, primary balance 37.9 [62.1] 29 48.5 [51.5] 33 63.6 [36.4] 33 77.1 [22.9] 35 historical conditions (percent of GDP) Sustainability gap, primary balance 22.7 [77.3] 22 42.9 [53.6] 28 70.4 [29.6] 27 76.5 [17.6] 34 current conditions (percent of GDP) Sustainability gap, primary balance 37.9 [62.1] 29 48.5 [51.5] 33 63.6 [36.4] 33 77.1 [22.9] 35 stressed conditions (percent of GDP) Sustainability gap, primary balance 37.9 [62.1] 29 48.5 [51.5] 33 63.6 [36.4] 33 77.1 [22.9] 35 benign conditions (percent of GDP) Balance sheet composition General government debt in foreign currency ... [...] 6 72.7 [0.0] 11 70.0 [20.0] 10 33.3 [41.7] 12 (percent of total) Debt securities held by nonresidents (percent of total) ... [...] 0 ... [...] 0 ... [...] 0 56.7 [36.7] 30 General government debt held by nonresidents ... [...] 7 33.3 [66.7] 12 16.7 [83.3] 12 39.3 [60.7] 28 (percent of total) Concessional external debt stocks ... [...] 0 ... [...] 0 ... [...] 0 ... [...] 0 (percent of general government gross debt) Sovereign debt average maturity (years) ... [...] 0 ... [...] 0 ... [...] 0 30.0 [70.0] 20 Central government debt maturing in ... [...] 0 ... [...] 0 ... [...] 0 54.5 [39.4] 33 12 months or less (percent of GDP) 1/ External and private sector debt Total external debt stocks (percent of GDP) 2/ ... [...] 0 9.4 [90.6] 32 9.4 [90.6] 32 50.0 [50.0] 32 External debt in foreign currency (percent of total) ... [...] 0 ... [...] 2 ... [...] 2 ... [...] 5 Private external debt stocks (percent of GDP) 2/ ... [...] 0 12.5 [87.5] 32 31.3 [68.8] 32 75.0 [25.0] 32 Domestic credit to private sector (percent of GDP) 8.6 [91.4] 35 25.7 [74.3] 35 22.9 [77.1] 35 50.0 [50.0] 36 Short-term external debt stocks (percent of total) 2/ ... [...] 0 40.6 [59.4] 32 59.4 [40.6] 32 68.8 [28.1] 32 Short-term external debt stocks ... [...] 0 6.3 [93.8] 32 46.9 [53.1] 32 78.1 [21.9] 32 (percent of reserves) 2/ Total external debt stocks (percent of reserves) 2/ ... [...] 0 3.1 [96.9] 32 40.6 [59.4] 32 75.0 [25.0] 32 Total external debt stocks ... [...] 0 3.1 [96.9] 32 28.1 [71.9] 32 75.0 [25.0] 32 (percent of reserves excluding gold) 2/ Market perception 5-year sovereign CDS spreads (basis points) ... [...] 0 ... [...] 0 ... [...] 0 0.0 [100.0] 20 Foreign currency long-term sovereign debt ratings 45.2 [41.9] 31 7.9 [63.2] 38 44.7 [39.5] 38 52.5 [20.0] 40 (index ranging 1-21 [best]) Note: Share shows the percent shares of countries with negative change (∆-) and with positive change (∆+) (in bracket) over the denoted periods. The percent shares are not computed, when the number of observations is less than 10. A negative (positive) change refers to a change at least by 0.1 percenrage point for variables expressed in percent (or 10 basis points for CDS spreads). For sovereign debt average maturity and long-term sovereign debt ratings, a change by 0.1 percent is used. Because of small or no change in some indicators, they do not always add up to 100. 1/ Data for 2015 are used, instead of 2016. 2/ Data for 2011 are used, instead of 2007. 3/ Data for 2003 are used, instead of 2000. 41 Table A7. Changes in fiscal space, share of countries, EMDEs 1995-2016 2000-07 2000-16 2007-16 Share Share Share Share ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. ∆- [∆+] Obs. Government debt sustainability General government gross debt (percent of GDP) 52.7 [47.3] 55 79.8 [20.2] 124 61.8 [37.4] 123 29.0 [71.0] 145 Primary balance (percent of GDP) 69.9 [30.1] 93 39.8 [59.4] 133 66.7 [31.8] 132 74.5 [24.1] 145 Cyclically-adjusted balance (percent of potential GDP) 65.4 [32.1] 81 35.1 [60.4] 111 64.0 [36.0] 111 69.5 [29.7] 118 Fiscal balance (percent of GDP) 61.9 [36.1] 97 29.3 [67.9] 140 61.2 [37.4] 139 75.3 [22.0] 150 General government gross debt 52.7 [47.3] 55 79.8 [20.2] 124 62.6 [37.4] 123 29.2 [70.8] 144 (percent of average tax revenues) Fiscal balance (percent of average tax revenues) 62.9 [37.1] 97 30.7 [69.3] 140 62.6 [37.4] 139 77.2 [22.1] 149 Sustainability gap, fiscal balance (percent of GDP) 85.4 [14.6] 96 20.7 [79.3] 135 62.7 [35.8] 134 88.7 [11.3] 150 Sustainability gap, primary balance 76.6 [23.4] 47 40.9 [59.1] 66 72.7 [25.8] 66 79.2 [20.8] 72 country-specific conditions (percent of GDP) Sustainability gap, primary balance 76.6 [23.4] 47 40.9 [59.1] 66 72.7 [25.8] 66 79.2 [20.8] 72 historical conditions (percent of GDP) Sustainability gap, primary balance ... [...] 9 20.5 [79.5] 44 50.0 [45.5] 44 92.5 [7.5] 67 current conditions (percent of GDP) Sustainability gap, primary balance 76.6 [23.4] 47 40.9 [59.1] 66 72.7 [25.8] 66 79.2 [20.8] 72 stressed conditions (percent of GDP) Sustainability gap, primary balance 76.6 [23.4] 47 40.9 [59.1] 66 72.7 [25.8] 66 79.2 [20.8] 72 benign conditions (percent of GDP) Balance sheet composition General government debt in foreign currency ... [...] 1 ... [...] 2 ... [...] 2 ... [...] 3 (percent of total) Debt securities held by nonresidents (percent of total) ... [...] 0 ... [...] 0 ... [...] 0 36.4 [45.5] 11 General government debt held by nonresidents ... [...] 1 ... [...] 1 ... [...] 1 52.2 [47.8] 23 (percent of total) Concessional external debt stocks 75.7 [24.3] 37 60.4 [38.5] 96 72.7 [23.2] 99 69.9 [29.2] 113 (percent of general government gross debt) 1/ Sovereign debt average maturity (years) 90.0 [10.0] 10 54.5 [45.5] 22 47.8 [52.2] 23 57.9 [42.1] 38 Central government debt maturing in ... [...] 0 ... [...] 0 ... [...] 0 23.8 [71.4] 84 12 months or less (percent of GDP) 2/ External and private sector debt Total external debt stocks (percent of GDP) 50.9 [49.1] 55 75.0 [25.0] 120 50.0 [50.0] 58 25.8 [74.2] 62 External debt in foreign currency (percent of total) ... [...] 0 ... [...] 2 ... [...] 2 50.0 [50.0] 18 Private external debt stocks (percent of GDP) 23.6 [69.1] 55 38.3 [27.5] 120 25.9 [67.2] 58 29.0 [64.5] 62 Domestic credit to private sector (percent of GDP) 7.3 [92.7] 123 25.7 [72.1] 140 14.7 [85.3] 129 17.3 [82.0] 133 Short-term external debt stocks (percent of total) 40.0 [56.4] 55 33.1 [62.8] 121 38.6 [61.4] 57 57.4 [36.1] 61 Short-term external debt stocks 55.6 [44.4] 54 67.8 [28.7] 115 59.6 [38.6] 57 49.2 [47.5] 61 (percent of reserves) Total external debt stocks (percent of reserves) 74.5 [25.5] 55 83.5 [16.5] 115 77.6 [22.4] 58 32.3 [67.7] 62 Total external debt stocks 74.5 [25.5] 55 83.5 [16.5] 115 74.1 [25.9] 58 30.6 [69.4] 62 (percent of reserves excluding gold) Market perception 5-year sovereign CDS spreads (basis points) ... [...] 0 93.3 [0.0] 15 66.7 [33.3] 15 3.0 [97.0] 33 Foreign currency long-term sovereign debt ratings 36.0 [64.0] 25 26.2 [60.0] 65 33.3 [61.9] 63 51.7 [32.6] 89 (index ranging 1-21 [best]) Note: Share shows the percent shares of countries with negative change (∆-) and with positive change (∆+) (in bracket) over the denoted periods. The percent shares are not computed, when the number of observations is less than 10. A negative (positive) change refers to a change at least by 0.1 percenrage point for variables expressed in percent (or 10 basis points for CDS spreads). For sovereign debt average maturity and long-term sovereign debt ratings, a change by 0.1 percent is used. Because of small or no change in some indicators, they do not always add up to 100. 1/ Data for 2015 are used, instead of 2016. 2/ Data for 2011 are used, instead of 2007. 42 Table A8. List of crisis episodes Advanced economies (25) EMDEs (94) Banking Currency Debt Banking Currency Debt Banking Currency Debt Banking Currency Debt crises crises distress crises crises distress crises crises distress crises crises distress Austria 2008 Albania 1994 1997 Gabon 1994 2002 Pakistan 1999 Belgium 2008 Algeria 1994 Gambia, The 2003 Papua New Guinea 1995 Czech Republic 1996 Angola 1996 Georgia 1999 Paraguay 1995 2002 Denmark 2008 1993 Argentina 1995, 2001 2002 2001 Ghana 1993, 2000, 2009 Philippines 1997 1998 Finland 1993 Armenia 1994 Grenada 2004 Romania 1996 France 2008 Azerbaijan 1995 Guinea 1993 2005 Russian Federation 1998, 2008 1998 1998 Germany 2008 Belarus 1995 1997, 2009 Guinea-Bissau 1995 1994 Sao Tome & Principe 1997 Greece 2008 2012 Benin 1994 Guyana 1993 Senegal 1994 Iceland 2008 2008 Bolivia 1994 Haiti 1994 2003 Serbia 2000 Ireland 2008 Brazil 1994 1999 2002 Hungary 2008 Seychelles 2008 2008 Italy 2008 1995 Bulgaria 1996 1996 India 1993 Sierra Leone 1998 Japan 1997 Burkina Faso 1994 Indonesia 1997 1998 1998 South Africa 1993 Korea, Rep. 1997 1997, 2008 Burundi 1994 Iran, Islamic Rep. 1993, 2000 Sri Lanka 1996 Latvia 1995, 2008 Cabo Verde 1993 Jamaica 1996 2010 Sudan 1993 Lithuania 1995 Cameroon 1995 1994 Kazakhstan 2008 1999 Suriname 1995, 2001 Luxembourg 2008 Central African Rep. 1995 1994 Kenya 1993 Swaziland 1995 Netherlands 2008 Chad 1994 Kyrgyz Republic 1995 1997 Tajikistan 1999 Portugal 2008 China 1998 Lao PDR 1997 Thailand 1997 1998 Slovak Republic 1998 Colombia 1998 Libya 2002 Togo 1993 1994 Slovenia 2008 Comoros 1994 Macedonia, FYR 1993 Turkey 2000 2001 2001 Spain 2008 1995 Congo, Dem. Rep. 1994 1994, 2009 Madagascar 1994, 2004 Turkmenistan 2008 Sweden 2008 Congo, Rep. 1994 Malawi 1994 Uganda 1994 Switzerland 2008 Costa Rica 1994 Malaysia 1997 1998 Ukraine 1998, 2008 1998, 2009 1998 United Kingdom 2007 Cote d'Ivoire 1994 2000 Mali 1994 Uruguay 2002 2002 2003 United States 2007 Croatia 1998 1993 Mauritania 1993 Uzbekistan 2000 Dominica 2002 Mexico 1994 1995 Venezuela, RB 1994 1994, 2002, 2010 1998, 2005 Dominican Republic 2003 2003 2005 Moldova 1999 2002 Vietnam 1997 Ecuador 1998 1999 1999, 2008 Mongolia 2008 1997 Yemen, Rep. 1996 1995 Equatorial Guinea 1994 Myanmar 2001, 2007 Zambia 1995 1996, 2009 Eritrea 1993 Nicaragua 2000 Zimbabwe 1995 2003 Ethiopia 1993 Niger 1994 Fiji 1998 Nigeria 2009 1997 2001 Note: Financial crises are based on Gourinchas and Obstfeld (2012) and Laeven and Valencia (2013). Only the crisis episodes considered in Figure 6 and Tables A9 and A10 are listed. The total numbers of crises are: 25 banking crises, 7 currency crises, and 1 debt distress episodes in advanced economies, and 54 banking crises, 82 currency crises, and 24 debt distress episodes in EMDEs. 43 Table A9. Changes in fiscal space during financial crises, before vs after Before After Before After Difference Difference Mean N Mean N (P-value) Mean N Mean N (P-value) Advanced economies EMDEs General government gross debt (percent of GDP) Banking crises 48.6 45 65.6 46 0.01 Banking crises 37.0 37 52.7 54 0.03 Currency crises 47.8 13 63.3 14 0.26 Currency crises 68.9 77 71.2 103 0.79 Debt distress Debt distress 72.6 34 70.1 42 0.75 Primary balance (percent of GDP) Banking crises 0.7 45 -4.8 46 0.00 Banking crises 0.3 66 -0.4 82 0.34 Currency crises 0.9 14 -0.8 14 0.23 Currency crises -8.4 110 -0.2 131 0.09 Debt distress Debt distress 1.7 39 3.0 46 0.19 Sustainability gap, primary balance, historical conditions (percent of GDP) Banking crises 0.9 45 -4.6 46 0.00 Banking crises 2.3 51 1.9 59 0.66 Currency crises 1.1 14 -0.6 14 0.22 Currency crises 0.1 59 2.3 70 0.00 Debt distress Debt distress 2.9 31 3.5 38 0.62 Sustainability gap, primary balance, current conditions (percent of GDP) Banking crises 3.0 40 -8.0 41 0.00 Banking crises 2.3 26 -2.7 41 0.04 Currency crises -1.6 12 -1.8 12 0.93 Currency crises 0.0 32 3.1 45 0.07 Debt distress Debt distress 1.8 20 0.5 28 0.68 Sovereign debt average maturity (years) Banking crises 7.9 30 8.2 30 0.61 Banking crises 11.7 32 11.4 44 0.83 Currency crises Currency crises 13.8 32 12.4 39 0.30 Debt distress Debt distress 15.9 25 12.2 30 0.03 Total external debt stocks, change (percent points of GDP) Banking crises 49.7 38 11.4 39 0.18 Banking crises 1.1 96 1.1 105 0.99 Currency crises Currency crises 2.0 150 -3.5 153 0.15 Debt distress Debt distress 1.6 40 -3.0 43 0.17 Domestic credit to private sector, change (percentage points of GDP) Banking crises 5.8 47 -0.6 48 0.01 Banking crises 2.8 94 -3.0 104 0.00 Currency crises 1.8 14 -4.8 14 0.37 Currency crises 0.9 141 -1.9 156 0.00 Debt distress Debt distress 1.0 44 -1.1 48 0.06 Short-term external debt stocks (percent of total) Banking crises 41.0 38 38.3 40 0.46 Banking crises 14.7 99 11.5 108 0.10 Currency crises Currency crises 14.6 152 12.6 154 0.17 Debt distress Debt distress 14.8 40 12.8 44 0.40 Foreign currency long-term sovereign debt ratings (index ranging 1-21 [best]) Banking crises 19.2 46 17.8 49 0.05 Banking crises 10.9 48 8.7 59 0.00 Currency crises 18.5 14 16.5 14 0.04 Currency crises 9.2 50 7.0 64 0.00 Debt distress Debt distress 7.9 32 5.7 36 0.00 Note: Mean value is the average of each variable before and after the onset of crises. The period coverage is two years, meaning that averages for “Before” cover t-2 and t-1 and those for “After” do t+1 and t+2. N is the number of observations used to compute mean values. P-values of Wald tests where the null hypothesis is that the two mean values are equal are reported. The values in bold show that the two means are statistically significantly different at least at the 10 percent level. When the number of observations is less than five in a year, that year is excluded from the calculation. 44 pre-crisis vs current period Table A10. Changes in fiscal space, pre- Before crisis Current period Before crisis Current period Difference Difference Mean N Mean N (P-value) Mean N Mean N (P-value) Advanced economies EMDEs General government gross debt (percent of GDP) Banking crises 48.6 45 71.4 37 0.01 Banking crises 37.0 37 52.7 148 0.00 Currency crises 47.8 13 71.4 37 0.08 Currency crises 68.9 77 52.7 148 0.03 Debt distress 71.4 37 Debt distress 72.6 34 52.7 148 0.00 Primary balance (percent of GDP) Banking crises 0.7 45 0.6 37 0.86 Banking crises 0.3 66 -3.5 146 0.00 Currency crises 0.9 14 0.6 37 0.81 Currency crises -8.4 110 -3.5 146 0.31 Debt distress 0.6 37 Debt distress 1.7 39 -3.5 146 0.00 Sustainability gap, primary balance, historical conditions (percent of GDP) Banking crises 0.9 45 1.0 35 0.93 Banking crises 2.3 51 -2.0 72 0.00 Currency crises 1.1 14 1.0 35 0.91 Currency crises 0.1 59 -2.0 72 0.00 Debt distress 1.0 35 Debt distress 2.9 31 -2.0 72 0.00 Sustainability gap, primary balance, current conditions (percent of GDP) Banking crises 3.0 40 1.6 34 0.07 Banking crises 2.3 26 -3.0 70 0.00 Currency crises -1.6 12 1.6 34 0.16 Currency crises 0.0 32 -3.0 70 0.02 Debt distress 1.6 34 Debt distress 1.8 20 -3.0 70 0.04 Sovereign debt average maturity (years) Banking crises 7.9 30 7.8 23 0.87 Banking crises 11.7 32 9.0 62 0.03 Currency crises 7.8 23 Currency crises 13.8 32 9.0 62 0.00 Debt distress 7.8 23 Debt distress 15.9 25 9.0 62 0.00 Total external debt stocks (percent of GDP) Banking crises 441.7 38 397.3 35 0.85 Banking crises 64.4 99 59.7 67 0.54 Currency crises 397.3 35 Currency crises 71.0 150 59.7 67 0.20 Debt distress 397.3 35 Debt distress 54.1 40 59.7 67 0.38 Domestic credit to private sector (percent of GDP) Banking crises 114.0 48 110.7 36 0.78 Banking crises 29.4 97 43.0 134 0.00 Currency crises 115.8 14 110.7 36 0.82 Currency crises 19.3 149 43.0 134 0.00 Debt distress 110.7 36 Debt distress 24.9 45 43.0 134 0.00 Short-term external debt stocks (percent of total) Banking crises 41.0 38 36.9 35 0.28 Banking crises 14.7 99 14.4 67 0.88 Currency crises 36.9 35 Currency crises 14.6 152 14.4 67 0.90 Debt distress 36.9 35 Debt distress 14.8 40 14.4 67 0.85 Foreign currency long-term sovereign debt ratings (index ranging 1-21 [best]) Banking crises 19.2 46 17.4 40 0.01 Banking crises 10.9 48 9.8 99 0.04 Currency crises 18.5 14 17.4 40 0.12 Currency crises 9.2 50 9.8 99 0.30 Debt distress 17.4 40 Debt distress 7.9 32 9.8 99 0.00 Note: Mean value is the average of each variable over two years before the crises (t-2 and t-1) and in 2016 (for the current period). N is the number of observations used to compute mean values. P-values of Wald tests where the null hypothesis is that the two mean values are equal are reported. The values in bold show that the two means are statistically significantly different at least at the 10 percent level. When the number of observations is less than five in a year, that year is excluded from the calculation. 45 Table A11. Changes in fiscal space over oil price plunges Oil price plunge Before After Difference Mean N Mean N (P-value) General government gross debt (percent 47.1 164 52.4 208 0.25 of GDP) Primary balance (percent of GDP) 2.9 198 -2.5 231 0.03 Sustainability gap, primary balance, 5.1 105 2.0 125 0.00 historical conditions (percent of GDP) Sustainability gap, primary balance, 6.5 64 -0.3 82 0.00 current conditions (percent of GDP) General government debt in foreign 31.4 4 currency (percent of total) Debt securities held by nonresidents 0.7 8 (percent of total) General government debt held by 36.3 8 31.0 12 0.37 nonresidents (percent of total) Sovereign debt average maturity (years) 12.6 44 11.3 51 0.20 Total external debt stocks (percent of 59.5 153 57.0 180 0.69 GDP) Private external debt stocks (percent of 9.2 153 9.7 180 0.74 GDP) Domestic credit to private sector (percent 24.9 215 26.8 252 0.45 of GDP) Short-term external debt stocks (percent 13.9 156 14.2 182 0.81 of total) Foreign currency long-term sovereign 11.0 109 10.8 128 0.74 debt ratings (index ranging 1-21 [best]) Note: Mean value is the average of each variable before and after oil price plunges. The period coverage is two years, meaning that averages for “Before” cover t-2 and t-1 and those for “After” do t+1 and t+2. N is the number of observations used to compute mean values. P-values of Wald tests where the null hypothesis is that the two mean values are equal are reported. The values in bold show that the two means are statistically significantly different at least at the 10 percent level. When the number of observations is less than five in a year, that year is excluded from the calculation. 46