A note on the debt sustainability issue in Turkey

Nur Keyder


The purpose of the paper is to shed light on the composition of the public sector debt stock and, by using the year-end 2002 net public debt stock-to-GNP ratio as the starting point, estimate the primary surplus-to-GNP ratio that will be necessary for the sustainability of the debt stock, using a modified version of the approach suggested by the World Bank (World Bank (2000), “Turkey—Country Economic Memorandum—Structural Reforms for Sustainable Growth, Vol. I and II,” Report No. 20657-TU, Washington, DC, pp. 16-18 and 121-124). The relevant tables for the primary surplus-to-GNP ratio requirements are constructed under different scenarios with respect to the real interest rate, growth rate and the rate of inflation. The second stage consists of estimating the weighted average real interest rate on the current central government debt stock. The debt sustainability issue is then evaluated by comparing the estimated primary surplus-to-GNP ratios required by the targeted primary surplus ratio, taking into consideration the real interest rate on the existing stock.

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