A stochastic debt sustainability analysis of Budget 2022

Abstract

This report provides a stochastic debt sustainability analysis of the medium-term outlook presented in Budget 2022.

Highlights

  • Based on past experience, our results suggest that the Government could maintain debt sustainability over the medium term. We estimate there is a 65 per cent chance that the Government’s gross debt-to-GDP ratio in 2026-27 will be below its 2021-22 value.

  • However, our results also suggest that, on balance, there is upside risk to the Budget 2022 projection of gross debt as a share of GDP. We estimate there is a 65 per cent chance that the gross debt-to-GDP ratio in 2026-27 will exceed the Budget 2022 projection.

  • Based on past experience, it is highly likely that the gross debt-to-GDP ratio will not return to its 2019-20 pre-pandemic level of 46.9 per cent by the end of the medium-term planning horizon in 2026-27.

  • We estimate there is effectively an even chance that the budgetary deficit in 2026-27 will be lower than the Government’s 1 per cent of GDP medium-term deficit target and that, on balance, there is upside risk to the Budget 2022 projection of the deficit as a share of GDP.

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