DIE 05 - 24 Límite de deuda y nivel de deuda prudente en Uruguay: en busca deun ancla de medianoplazo para la política fiscal

The objective of this work is to find a level of public debt that can serve as a medium term anchor for fiscal policy in Uruguay. To achieve this, a strategy was outlined that combines the methodologies of Ganiko, et al. (2016), Eyraud, et al. (2018b) and Debrun, et al. (2020), seeking to overcome some limitations that these present separately in their application to the Uruguayan case. First, using a panel of Latin American and Caribbean countries, a fiscal reaction function and a financing cost curve are estimated. The intersection of both curves provides the debt limit, that is, a threshold above which the probability of default is very high. Subsequently, a VAR model for the determining variables of the debt is estimated, specifically for Uruguay, with the objective of performing stochastic simulations of its expected trajectory. In this way, the probability of exceeding the debt limit is found for different initial levels of debt. Following this methodology, it is concluded that Uruguay's debt limit would be between 77% and 91% of GDP for the general government, depending on the assumptions made for the control variables used, with 84% being the centre of said interval. On the other hand, it was found that a general government gross debt level of 59% of GDP would be consistent with a 5% probability of exceeding the debt limit of 84% over a 10-year
horizon. This value can be considered the prudent debt level for Uruguay and serve as an anchor for fiscal policy. This result is robust to changes in different methodological
aspects.

Keywords: debt limit, prudent debt, fiscal rule, fiscal anchor, fiscal space.