Public debt sustainability: a stochastic analysis of Portugal in a post Covid Europe

Abstract

We analyze the vulnerability of the Portuguese Public debt medium term sustainability with respect to the main Debt determinants that are outside the government’s control by setting a stochastic environment based on two main sources: European Commission and OECD. The method to generate random socks and consequently generate a probabilistic forecast is based on (Berti 2013), which is particularly suitable for forecasting shocks on the non-fiscal public debt determinants under a no-policy change scenario. Overall little evidence is found to support a potential unsustainable position in a 5-year period.