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<ul><li><p>Subnational Debt Sustainability Analysis</p><p>Case Study DSA using Analytica</p><p>Buenos Aires, Argentina</p></li><li><p>Buenos Aires: Issues of Interest Defining sustainability at sub-national level:</p><p> Buenos Aires: Federal Fiscal Responsibility Law Fiscal Rules Nominal growth of primary expenditures &lt; GDP growth </p><p> PEt=TEt-iEt-INV.INFt-INV.MULTt Budget equilibrium</p><p> BEt=TRt-(TEt-CE.MULTt-INV.INFt) Debt Service &lt; 0.15*NCR (Excluding transfers to municipalities)</p><p> If Debt Service &gt; 0.15 * NCR Primary Surplus required Defining alternative scenarios and values for uncertain variables: </p><p> Joint shocks to macroeconomic variables that affect budget and debt variables Extra-limit debt scenarios: With and without World Bank loan</p><p> Modeling SN specific features: Buenos Aires has a structural fiscal problem arising from increased burden of </p><p>public expenditures linked to decentralization policies coupled with limitations imposed to sources of (tax) revenues</p><p> Hence, extraordinary revenues have played a major role And an wide array of financing sources have had to be devised Several financing instruments (mainly bonds) issued in local and foreign market </p></li><li><p>Buenos Aires- Basic Model Developed as one of the inputs for the provincial development </p><p>plan, which focuses on public policy areas that are under provincial control: Fiscal space and sustainability Education Infrastructure and logistics</p><p>Projection horizonSubmodels</p><p>Alternative scenarios</p><p>Budgetvar iables</p><p>Macrovar iables</p><p>Debtdynam ics</p><p>Real GDP grow th -Baseline and</p><p>Alternative</p><p>Real GSDP grow th -Baseline and</p><p>Alternatives (2)</p><p>CPI inf lation -Baseline and</p><p>Alternative</p><p>Base Year Time HorizonTimeIndicators</p><p>Grossfinancing</p><p>needs (GFN)</p></li><li><p>Macro Sub Model Risk to outlook from structural primary deficits compounded by </p><p>potential macro volatility CPI Inflation (official vs own estimates) and CER</p><p>Growth GDP</p><p>Exchange rates</p><p>Stochastic shocks</p><p>Growth GSDP</p><p>AR$/US$ w ithshocks</p><p>AR$/US$</p><p>CER </p><p>Pass-through factor CPI-GDPdeflator</p><p>(ow n estimates)</p><p>Nominal GSDPgrow th w ith</p><p>shocks</p><p>Nominal GDPgrow th w ith</p><p>shocks</p><p>Real GDP grow thBaseline</p><p>GDP deflatorinflation</p><p>Real GDP</p><p>GDP deflator</p><p>Nominal GDP</p><p>Real GDP grow thrate</p><p>Real GDP grow thAlternative</p><p>Real GDP grow th -sd</p><p>Differentialbetw een</p><p>grow th rate ofnominal GSDP</p><p>and GDP</p><p>Stochas ticm odule</p><p>CPI inflationw ith shocks</p><p>CPI inflation(ow n estimates)</p><p>CPI inf lationAdjustment factor</p><p>(ow n estimate)</p><p>Joint StochasticShocks</p><p>CPI inflation Baseline</p><p>CPI inflationAlternative</p><p>CPI inflation - sd</p><p>Depreciation rate(AR$/US$)</p><p>AR$/EUR</p><p>AR$/EUR w ithshocks</p><p>Nominal GDPgrow th</p></li><li><p>Budget VariablesGross Operating Balance: GOBt = TRt - CEtPrimary Balance: PBt = (TRt iRt) (TEt iEt)Overall Balance: OBt = TRt TEt</p><p>Revenue Expenditure</p><p>GrossOperatingBalance</p><p>Overall BalancePrimary Balance</p><p>Shock to PrimaryBalance</p></li><li><p>Gross Financing Needs</p><p>Gross financing needs (GFN)</p><p>Coverage of GFN</p><p>Gross f inancing needs(GFN)</p><p>TotalDebt Service</p><p>Primary Balance</p><p>Initialinterest payments</p><p>TotalInterest Payments fromIO, bonds and NG debt</p><p>Total Amortizations Total Interests</p><p>New debt -Bond X issuance</p><p>New debt -Disbursements IO</p></li><li><p>Current transfers from NG and other current revenue</p><p>Tax revenue</p><p>Non-tax revenue</p><p>Tax revenue</p><p>Initial non-taxrevenue Non-tax revenue</p><p>Initial other currentrevenue</p><p>Initial currenttransfers from NG</p><p>Current transfersfrom NG</p><p>Current tranfers fromNG and other current</p><p>revenueOther current</p><p>revenue</p><p>Capital revenue (own and capital transfers from NG)</p><p>Total Revenues</p><p>Current revenue</p><p>Initial ow n capitalrevenue</p><p>Initial capitaltransfers from NG</p><p>Reduction in f inancialinvestment</p><p>Capital revenueCapital transfers</p><p>from NG</p><p>Ow n capital revenue</p><p>Current revenue</p><p>Total Revenues</p><p>Net current revenue</p><p>RevenuesIn line with FFRL net current revenues defined as:NCRt=CFRt-TRANS.MUNICt</p></li><li><p>Own tax revenue</p><p>Turnover tax</p><p>Real estate tax</p><p>Vehicle tax</p><p>Stamp tax</p><p>Energy tax</p><p>Other taxes</p><p>Initial energy tax</p><p>Initial turnover tax</p><p>Initial real estate tax</p><p>Initial other taxes</p><p>Initial stamp tax</p><p>Initial vehicle tax</p><p>Ow n taxrevenue</p><p>Turnover taxgrow th</p><p>Real estate taxgrow th</p><p>Vehicle tax grow th</p><p>Stamp tax grow th</p><p>Energy tax grow th</p><p>Regulation taxgrow th</p><p>Energy tax -Elasticity</p><p>Turnover tax -Elasticity</p><p>Real estate tax -Elasticity</p><p>Stamp tax -Elasticity</p><p>Regulation tax -Elasticity</p><p>Vehicle tax -Elasticity</p><p>Tax revenue growth elasticities to sub-national real GDP growth are considered</p></li><li><p>Tax Sharing with National Government</p><p>Tax-sharing with NG</p><p>Social securitycontributions</p><p>Co-participation law</p><p>Other taxes from NG</p><p>Initial capital gain tax</p><p>Initial co-participation law</p><p>Initial other taxes from NG</p><p>Initial school transfers</p><p>Initial social securitycontributions</p><p>Tax-sharing w ithNG</p><p>National taxgrow th</p><p>National tax -Elasticity</p></li><li><p>Current Expenditures: Burden from decentralization compounded by increased personnel expenditures</p><p>Current expenditure</p><p>Initial personnelexpenditure</p><p>Initial goodsexpenditure</p><p>Initial non-personnelexpenditure</p><p>Goods expenditure</p><p>Non-personnelexpenditure</p><p>Personnel expenditure</p><p>Consumptionexpenditure</p><p>Shock to personnelexpenditure</p><p>Personnelexpenditure grow th</p><p>Pool of personnelgrow th</p><p>Initial tranfers toMunicipalities</p><p>Initial transfers toprivate sector</p><p>Transfers toMunicipalities and</p><p>private sector</p><p>Transfers to privatesector</p><p>Transfers toMunicipalities</p><p>Initial social securityspending</p><p>Social securityspending</p><p>Current expenditure</p><p>TotalInterest Payments from IO, bonds</p><p>and NG debt</p></li><li><p>Capital Expenditures</p><p>Capital expenditure</p><p>Initial real directinvestment</p><p>Initial capital transfers toMunicipalities</p><p>Initial f inancial investment</p><p>Capital transfers toMunicipalities</p><p>Capital expenditure</p><p>Real direct investment</p></li><li><p>Debt Dynamics (1)</p><p>Initial debt IO (US$) Debt IO (US$)</p><p>InternationalOrganisations IBRD</p><p>&amp; IADBInitial amortizations IO</p><p>(US$)</p><p>New debt -Disbursements IO (US$)</p><p>DebtIO (all)</p><p>Initial interest payments IO(US$)</p><p>AmortizationsIO (all)</p><p>Interest payments IO (all)</p><p>Initial amortizationNon-indexed Bonds AR$</p><p>Bonds in US$</p><p>Initial debt Non-indexedBonds AR$Non-indexed Bonds</p><p>in AR$</p><p>Bonds in EUR</p><p>Initial debt Bonds US$(US$)</p><p>Initial debt Bonds EUR(EUR)</p><p>Initial amortization BondsUS$ (US$)</p><p>Initial amortization BondsEUR (EUR)</p><p>Debt Non-indexed BondsAR$</p><p>Debt Bonds US$ (US$)</p><p>Debt Bonds EUR (EUR)</p><p>Debt Bonds US$</p><p>Debt Bonds EUR</p><p>Initial interest paymentsNon-indexed Bonds AR$</p><p>Interest payments BondEUR Interest rate Bonds EUR</p><p>Interest payments BondUS$ Interest rate Bonds US$</p><p>Amortizations Bonds US$</p><p>Amortizations Bonds EUR</p></li><li><p>Debt Dynamics (2)</p><p>DebtBonds (all)</p><p>Interest payments Bonds(all)Amortizations Bonds (all)</p><p>NG debtCER-indexed bonds</p><p>Accumulated capitalBOGAR</p><p>Monthly interest rate PUM</p><p>Debt PUM Interest payments PUM</p><p>Capital Bono Malvinas</p><p>Capital PUM</p><p>Capital BOGAR</p><p>Monthly amortization rateBono Malvinas</p><p>Monthly amortization ratePUM</p><p>Monthly amortization rateBOGAR</p><p>Amortization BonoMalvinas</p><p>Amortization PUM</p><p>Amortization BOGAR</p><p>Initial debt BOGAR(at end-2008)</p><p>CER-indexedBonds in AR$</p><p>Initial debt Bono Malvinas(at issuance date)</p><p>Accumulated capital BonoMalvinas</p><p>Interest payments BonoMalvinas</p><p>Monthly interest rate BonoMalvinas</p><p>Debt Bono Malvinas</p><p>Initial debt Bono Malvinas(at end-2008)</p><p>Initial debt PUM(at issuance date)</p><p>Initial debt BOGAR(at issuance date)</p><p>Accumulated capital PUM</p><p>Monthly interest rateBOGAR</p><p>Initial debt PUM(at end-2008)</p><p>Debt BOGAR Interest payments BOGAR</p></li><li><p>Debt Dynamics (3)</p><p>Total Debt</p><p>AmortizationsNG debt (all)</p><p>Interest paymentsNG debt (all)</p><p>Debt FFNG debt FiduciaryFunds (FF)</p><p>Initial debt FF Initial amortization FF Initial interest payments FF</p><p>Initial Amount Convenio2007</p><p>Initial PAF/PFO(2004-07)NG debt PAF/PFO</p><p>(2004-07)</p><p>Debt PAF/PFO(2004-07)</p><p>Initial amortizationPAF/PFO (2004-07)</p><p>Initial interest paymentsPAF/PFO (2004-07)</p><p>Initial amortizationConvenio 2007 Debt Convenio 2007</p><p>Initial interest paymentsConvenio 2007</p><p>DebtNG (all)</p><p>Total Amortizations Total Interests</p><p>NG debt Convenio2007</p><p>New debt - Bond X New debt -Bond X issuance Amortizations Bond X Debt Bond X Interest payments Bond X Interest rate Bond X</p></li><li><p>Sustainability Analysis: The Federal Fiscal Responsibility Law</p><p>Personnel expenditure(% of NCR)</p><p>Real direct investment(% of NCR)</p><p>Gross OperatingBalance</p><p>(% of NCR)</p><p>Primary Balance (% ofNCR)</p><p>Gross f inancing needs(% of NCR)</p><p>Debt service(% of NCR)</p><p>Debt(% of NCR)</p><p>Overall Balance (% ofNCR)</p><p>Set of indicators used to follow compliance with the FFRL:</p></li><li><p>Joint Shocks to Macro Variables</p><p>Parametric Multivariate Distributions</p><p>Creating an array of mutually correlated distributions:</p><p>Creating a single univariate distribution correlated with another existing dist: Reshaped distributions:</p><p>Arrays with serial correlation</p><p>Distributions on Linear Regression coefficients</p><p>JointStochastic</p><p>Shocks</p><p>I</p><p>J</p><p>PastReal GDPgrowth rate- historical</p><p>series</p><p>Exchangerate</p><p>AR$/US$ -historical</p><p>series</p><p>CPI inflationrate -</p><p>historicalseries</p><p>Real GDPgrowth rate- historical</p><p>mean</p><p>Exchangerate</p><p>AR$/US$ -historical</p><p>mean</p><p>CPI inflationrate -</p><p>historicalmean</p><p>Variance-covariance</p><p>matrixMean</p><p>Wishart(cv,n,I,J)Inverted Wishart(Psi,n,I,J)</p><p>RegressionDist(Y,B,I,K)</p><p>Gaussian( m, cv, i, j ) Dirichlet ( a, i )BiNormal (m, s, i, c ) Multinomial (n, theta, i )</p><p>Correlate Dists (d, rc, i, j )</p><p>Correlate With (s, ref, rc )</p><p>Uniform Spherical (i, r )MultiUniform ( c, i, j, lb, ub )</p><p>SampleCovariance</p><p>samplecorrelation</p><p>Normal_correl(m, s, r, y)</p><p>SameIndexes(x,y) UniqueRank</p><p>Multinormal(m,s,c,i,j)</p><p>Dist_reshape(x, newdist)</p><p>Normal_serial_correl(m,s,r,i) Normal_additive_gro(x,m,s,r,i) Normal_compound_gro(x,m,s,r,t)</p><p>Dist_serial_correl(x,r,i) Dist_additive_growth(x,g,r,i) Dist_compound_growth(x,g,r,i)</p><p>RegressionNoise(Y,B,I,K,C) RegressionFitProb(Y,B,I,K,C)</p></li><li><p>Results: Debt Service (% NCR) Baseline</p></li><li><p>Primary Balance (%NCR) Baseline</p></li><li><p>Gross Financing Needs (%NCR) baseline</p></li><li><p>Personnel Expenditures (%NCR) Baseline</p><p>Subnational Debt Sustainability AnalysisBuenos Aires: Issues of Interest Buenos Aires- Basic ModelMacro Sub ModelBudget VariablesGross Financing NeedsRevenuesTax revenue growth elasticities to sub-national real GDP growth are consideredTax Sharing with National GovernmentCurrent Expenditures: Burden from decentralization compounded by increased personnel expendituresCapital ExpendituresDebt Dynamics (1)Debt Dynamics (2)Debt Dynamics (3)Sustainability Analysis: The Federal Fiscal Responsibility LawJoint Shocks to Macro VariablesResults: Debt Service (% NCR) BaselinePrimary Balance (%NCR) BaselineGross Financing Needs (%NCR) baselinePersonnel Expenditures (%NCR) Baseline</p></li></ul>

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