Publication of the Parliamentary Budget Office’s 2021 Debt Sustainability Analysis Calculator

The Director of the Parliamentary Budget Office, Annette Connolly, commenting on the release of the calculator stated:

“The PBO’s view is that as the economy recovers, government should aim to close the deficit and avoid increasing the already high debt level much further. That said, a balance must be made between that objective and funding growth-enhancing measures and structural reforms. This will allow the economy to achieve its full potential, ultimately supporting fiscal sustainability.

It is important to understand the interplay between revenue, spending, deficit, and debt. The PBO’s debt sustainability analysis calculator helps to highlight these interactions by showing the outcomes of decisions at a high level.”

The purpose of the data visualisation calculator and some of the key messages outlined are:

Exploring graphically how differing fiscal policy and budgetary choices would affect debt sustainability and EU fiscal rules compliance in the coming years

The Debt Sustainability Analysis Calculator lets users make their own revenue and spending policy projections from 2022 out to 2050. It highlights how changes to fiscal plans would directly affect the debt to GDP trajectory and whether or not the core EU fiscal rules are being met.

In addition, the calculator can be used to model Ireland’s exposure to uncertain GDP growth and interest rate risks. With sliders and dropdown boxes, it allows the user to see for themselves how different interest rates and other inputs would affect projected debt servicing costs and budget balances.  Users can also input their own data into the calculator. 

As the PBO has noted, the scope for fiscal policy in the years ahead will be much more limited than in the past. The core EU fiscal rules mandate a debt to GDP ratio below 60% and public deficits below 3% of GDP. While the fiscal rules are currently suspended, Ireland must prepare to return to being fiscally compliant in preparation for their eventual reintroduction as the COVID-19 crisis ebbs. 

As the temporary costs of the Covid-19 crisis fade, the permanent spending increases in Budget 2021 have already committed much of the revenue growth to 2025. The pre-set model values are based on the Department of Finance 2021 Summer Economic Statement which maintains deficit borrowing out to 2025, and how Ireland’s long-term situation and observance of fiscal rules are affected.

Funding new policy initiatives mean choices need to be made between raising taxes or reprioritising spending to keep debt on a fiscally prudent and compliant path. The Debt Sustainability Analysis Calculator allows users to evaluate different projected budget packages and investigate the feasibility of changing future spending.

The primary calculator graphed inputs include:

• Primary spending excluding interest
• Revenue
• Nominal GDP growth
• Market interest rate

 The primary calculator graphed outputs include:

• Gross national debt to GDP ratio
• Borrowing requirement
• Interest spending
• Primary balance
• Gross national debt
• Nominal GDP

In addition, the calculator outputs compliance with the core EU fiscal rules:

• Deficit to GDP ratio vs fiscal rules target
• Gross national debt to GDP ratio vs fiscal rules target
• Are fiscal rules being broken?

The calculator builds on previous internal PBO models and publications. The aim is to be accessible to the general public and illustrate various fiscal positions visually.

The publication follows on from the PBO’s Pre-Budget 2022 Commentary highlighting the importance of fiscal sustainability, both for Budget 2022 and the years to come.

The publication can be found on www.oireachtas.ie/pbo or here for the calculator and here for its guide.