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Read me European Commission Directorate-General for Economic and Financial Affairs Unit C2 - Sustainability of public finances [email protected] FILE DESCRIPTION Data reported in this file are based on the European Commission (EC) 2024 spring forecast (SF 2024) and macroeconomic and budgetary projections from the joint EC-EPC Ageing Report 2024 (AR 2024). This file contains a simplified version of the EC model used to calculate the general governement debt ratio dynamics for EU countries under different scenarios. A detailed description of the EC's general governement debt projections can be found in the "Debt Sustainability Monitor 2023" (DSM, March 2024). HOW TO USE THIS TOOL TO CALCULATE NEW DEBT PROJECTIONS This tool can be used to calculate debt projections under different macroeconomic and structural primary balance adjustment assumptions. Debt projections for each scenario will update automatically with changes in the macroeconomic assumptions or the adjustment parameters. The fulfilment of DSA-based criteria, the safeguards and the benchmark will be automatically calculated in the sheet "Criteria results". Formulas are fully visible. To assess the impact of alternative adjustment paths compared with the reference trajectory calculated by the EC or to check its robustness to underlying macroeconomic assumptions, the user can modify the content of key cells in the sheets "Criteria results" and "Input data" (see below). Note that, for a proper functioning of the file, you should make sure that Excel is in "Automatic" computation mode, i.e. in the File menu, Option tab, click on "Formulas", "Calculation Options" and "Automatic". The spreadsheet is composed of the following elements: The grey sheet "Criteria results" contains three types of cells identified by different colours: Cells with a yellow background and a red frame can be modified to see the impact of a different duration or pace of adjustment. Cells with a white or grey background provide results obtained with the adjustment chosen in the yellow cells. To replicate the Commission's calculations, the underlying formulas should not be modified. Cells with a pale blue background correspond to the Commission's prior guidance provided to the Member State. Those are hard numbers that do not depend on the adjustment chosen in the file. The sheet "Criteria results" contains six tables: Table 1 "Adjustment input data": the user can set the duration of the plan (4 years under no extension or 7 years under extension) and the yearly adjustment pace in cells F5 and F6 in yellow. Note that the country cell (F4) cannot be changed. To the right of Table 1, a message automatically signals whether the chosen adjustment is sufficient to fulfill all the requirements, summarising the results from Tables 2 and 3. Table 2 "DSA-based criteria" reports whether the chosen adjustment fulfils each of the DSA-based criteria. Table 3 "Safeguards and benchmark" reports whether (i) the chosen adjustment ensures that the debt sustainability safeguard is met, (ii) the 'deficit benchmark', i.e. the minimum adjustment of 0.5 pp. of GDP as a benchmark when the country is in EDP and/or the deficit exceeds 3% of GDP, is binding, and (iii) the deficit resilience safeguard is binding. Table 4 "Main fiscal variables" reports the annual adjustment over the adjustment period, in terms of change in SPB (line 19) and net primary expenditure growth (line 20). The table also reports the headline balance, the structural balance and debt (lines 21 to 23). The average annual adjustment is reported in cells G24 (average change in SPB over the 4-year plan period), G25 (average change in SPB over the 4-year or 7-year adjustment period), G26 (average net primary expenditure growth over the plan period) and G27 (average net primary expenditure growth over the adjustment period). Table 5 "DSA-based adjustment" summarises the key characteristics of the adjustment path that complies with the DSA-based criteria before applying the safeguards and benchmark, for a plan both with and without extension. Table 6 "Reference trajectory" reports the net expenditure growth and the corresponding annual change in SPB that are consistent with all requirements including the safeguards and benchmark, both without and with extension. The sheet "Input data" in light blue presents the input data, including fiscal and GDP growth assumptions as well as additional fiscal parameters. Unless stated otherwise below, the user can change all values in this tab. Coloured cells indicate data sources as follows (this colour-coding holds in the other spreadsheets): Cells in light grey indicate a Commission forecast (available in the AMECO database) Cells in light red indicate whether the country is subject to an ongoing excessive deficit procedure (EDP) or whether the Commission's June 2024 report under Art. 126(3) of the Treaty recommends opening an EDP. If neither of these conditions are met, the deficit benchmark is not relevant and therefore not applied. Cells in light blue indicate values from the Ageing Report 2024 Cells in light orange provide parameters needed to compute the decomposition of government debt according to its maturity structure (i.e. short-term and long-term debt, maturing, rolled-over and non-maturing debt). These are fixed shares which the user cannot change. Cells in dark orange indicate financial market prices. Non-coloured parameters in cells C49:C70 were calibrated based on different data sources. The data sources are indicated in the corresponding cells of column E. The last part of the sheet "Input data" (cells C73:G77) provides the parameters measuring the size of the cone of the fanchart that results from the stochastic analysis. For reproducibility reasons, these parameters are kept constant. The next spreadsheets present the deterministic and stochastic projections. Each deterministic projection provides a single path for debt until 2038 or 2041 under certain assumptions for budgetary, macroeconomic and financial variables, while the outcome of the stochastic projections is a distribution of debt paths resulting from a wide set of shocks. The sheets are grouped in four blocs, identified by their colour coding: The sheet in blue provides, as a reference, the baseline no-fiscal-policy-change scenario. The background colour coding is the same as in the sheet "Input data". The sheet in orange presents the scenario that automatically corrects the yearly adjustment path to account for the deficit benchmark and the deficit resillience safeguard. By contrast, the yearly adjustment profile is not automatically adjusted to ensure that the debt sustainability safeguard is met. However, the sheet "Criteria results" indicates whether that safeguard is met. The sheets in green present the deterministic projections that are used to compute the DSA-based requirements (in the sheet "Criteria results"). They include four scenarios: · Adjustment scenario without safeguard and benchmark · Financial stress scenario · Lower SPB scenario · Adverse 'r-g' scenario Each scenario is computed automatically based on the yearly adjustment path set in "Criteria results" (see above). The sheet in dark green presents the stochastic projections surrounding the adjustment scenario without safeguard and benchmark . Within the orange sheet and each green sheet, the background of the SPB line has three colours. Each colour corresponds to a specific period of the projections: Light grey indicates the pre-plan period, corresponding to the EC forecast Mild grey indicates the period during which the SPB adjusts according to the path set in sheet "Criteria results" Dark grey indicates the period in which the SPB, net of changes in cost of ageing, remains constant at its value of end of adjustment. In the sheets associated with the stress-test scenarios, i.e. "Financial stress", "Lower SPB" and "Adverse (r-g)", initial shocks are identified as follows: All variables that are shocked turn very dark grey. Additionally, for the lower SPB scenario, the cells get thick black borders in the years when the SPB is gradually reduced. WHERE ARE THE MAIN RESULTS LOCATED? Debt projections can be found in line 56 or 57 of each scenario. The corresponding net expenditure growth is located in line 79 or 80 in the baseline and adjustment scenario (and Adj. no safeguard) sheets. The average net expenditure growth over the adjustment period is computed in cell D81 of the sheet "Adjustment scenario". As a reminder, these numbers are also available in Table 4 in "Criteria results". The 'FASTOP reporting' sheet in violet provides help for preparing reporting tables. It readily provides all the tables envisaged in the guidance notice on the "Information Requirements for the Medium-Term Fiscal-Structural Plans" once the parameters are set in the rest of this file. Note that the probability of a declining debt ratio in table 7c derived from the stochastic simulations is only an approximation since the stochastic analysis is not an integral part of this Excel file. For a precise figure, the simulations need to be run. This sheet is therefore only meant to provide assistance. The figures still need to be thoroughly scrutinised before submitting the tables. Criteria results 4 0 Table 1 - Adjustment input data =IF(OR(AND($G$12="ok",$G$13="ok",$G$14="ok",$G$15="ok",$H$12="ok",$I$12="ok",$L$12<>"Not met"), AND($I$12="ok",$J$12="ok",$J$13="ok",$J$14="ok",$J$15="ok",$L$12<>"Not met")), "OK"&CHAR(10)&"adjustment"&CHAR(10)&"complies with all requirements", "NOT OK"&CHAR(10)&"adjustment does not"&CHAR(10)&"comply with all requirements") 7 0.02 Country RO 0.04 Number of years of adjustment 4 0.06 Annual adjustment (when benchmark not binding) 1.22 0.08 0.1 0.12 Table 2 - DSA-based criteria Table 3 - Safeguards and benchmark 0.14 Debt sustainability safeguard * Deficit benchmark ** Deficit resilience safeguard 0.16 Criterion 1 (Debt decreasing under deterministic scenarios) Criterion 2 * (Debt declining with sufficient probability) Criterion 3 (Deficit below 3% of GDP) ="Debt below 60% of GDP in T+"&10+F5&" **" Debt declines by 1pp (0.5pp) of GDP on average as long as debt exceeds 90% (60%) of GDP Average change in debt 0.5 pp. of GDP adjustment if deficit in previous year > 3% of GDP Number of years the benchmark applies 0.40 pp. (0.25 pp.) of GDP adjustment under plan without (with) extension if structural deficit in previous year > 1.5% of GDP Number of years the deficit resilience safeguard applies (over the adjustment horizon) 0.18 Adjustment scenario =IF(OR('Adjust. no safeguard'!F57>60,'Adjust. no safeguard'!F77<-3),IF(SUM(OFFSET('Adjust. no safeguard'!$F$83,0,$F$5+1,1,10))=0,"ok","Not met"),"") =IF(OR('Adjust. no safeguard'!F57>60,'Adjust. no safeguard'!F77<-3),IF($F$5=4,IF(Stochastic!$O$17<Stochastic!$J$17,"ok","Not met"),IF(Stochastic!$R$17<Stochastic!$M$17,"ok","Not met")),"") =IF(MIN(OFFSET('Adjust. no safeguard'!$F$77,0,$F$5,1,11))>-3.05,"ok","Not met") =IF(OFFSET('Adjust. no safeguard'!$F$57,0,$F$5+10,1,1)<60,"ok","Not met") =LET(_xlpm.debtChange,OFFSET('Adjustment scenario'!F58,0,1,1,$F$5), _xlpm.debt6090,OFFSET('Adjustment scenario'!F85,0,1,1,$F$5), _xlpm.debt90,OFFSET('Adjustment scenario'!F84,0,1,1,$F$5), _xlpm.EDP,OFFSET('Adjustment scenario'!F87,0,1,1,$F$5), IF(AND(MAX(_xlpm.debt90)=0,MAX(_xlpm.debt6090)=0),"Debt below 60% of GDP over the adjustment period", IF(MIN(_xlpm.EDP)=1,"Not applicable, reference year is the last year of adjustment", IF(AND(MAX(_xlpm.debt90)=0,MAX(_xlpm.debt6090)=1),IF(AVERAGEIFS(_xlpm.debtChange,_xlpm.debt6090,1,_xlpm.EDP,0)<-0.5,"ok","Not met"), IF(AND(MAX(_xlpm.debt90)=1,MAX(_xlpm.debt6090)=0),IF(AVERAGEIFS(_xlpm.debtChange,_xlpm.EDP,0)<-1,"ok","Not met"), IF(AND(MAX(_xlpm.debt90)=1,MAX(_xlpm.debt6090)=1),IF(AND(AVERAGEIFS(_xlpm.debtChange,_xlpm.debt90,1,_xlpm.EDP,0)<-1,AVERAGEIFS(_xlpm.debtChange,_xlpm.debt6090,1,_xlpm.EDP,0)<-0.5),"ok","Not met"))))))) =LET(_xlpm.debtChange,OFFSET('Adjustment scenario'!F58,0,1,1,$F$5), _xlpm.debt60,OFFSET('Adjustment scenario'!F86,0,1,1,$F$5), _xlpm.debt6090,OFFSET('Adjustment scenario'!F85,0,1,1,$F$5), _xlpm.debt90,OFFSET('Adjustment scenario'!F84,0,1,1,$F$5), _xlpm.EDP,OFFSET('Adjustment scenario'!F87,0,1,1,$F$5), IF(AND(MAX(_xlpm.debt90)=0,MAX(_xlpm.debt6090)=0),"Debt below 60% of GDP over the adjustment period", IF(MIN(_xlpm.EDP)=1,"Not applicable, reference year is the last year of adjustment", IF(AND(MAX(_xlpm.debt90)=0,MAX(_xlpm.debt6090)=1),AVERAGEIFS(_xlpm.debtChange,_xlpm.debt60,1,_xlpm.EDP,0), IF(AND(MAX(_xlpm.debt90)=1,MAX(_xlpm.debt6090)=0),AVERAGEIFS(_xlpm.debtChange,_xlpm.EDP,0), IF(AND(MAX(_xlpm.debt90)=1,MAX(_xlpm.debt6090)=1),AVERAGEIFS(_xlpm.debtChange,_xlpm.debt60,1,_xlpm.EDP,0))))))) =IF(AND(O12=0,F6<0.5),"not relevant","ok") =IF(F6<0.5,COUNTIFS('Adjustment scenario'!F77:H77,"<"&-3.049),0)+IF(AND(F5=4,J19>0.5,J19>F6),1,COUNTIFS(J19:M19,">" & F6,J19:M19,">"&0.5)) =IF(OR(AND(F5=4,Q12=0,F6<0.4),AND(F5=7,Q12=0,F6<0.25)),"not relevant, (over the adjustment horizon)","ok") =IF(AND('Criteria results'!$F$5=4,'Criteria results'!$F$6<=0.4),COUNTIFS('Adjustment scenario'!G13:J13,0.4,'Adjustment scenario'!F88:I88,0),IF(AND('Criteria results'!$F$5=7,'Criteria results'!$F$6<=0.25),COUNTIFS('Adjustment scenario'!G13:M13,0.25,'Adjustment scenario'!F88:L88,0),0)) 0.2 Financial stress scenario =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(SUM(OFFSET('Financial stress'!$F$75,0,$F$5+1,1,10))=0,"ok","Not met"),"") =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(OFFSET('Financial stress'!$F$56,0,$F$5+10,1,1)<60,"ok","Not met"),"") 0.22 Lower SPB scenario =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(SUM(OFFSET('Lower SPB'!$F$75,0,$F$5+1,1,10))=0,"ok","Not met"),"") =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(OFFSET('Lower SPB'!$F$56,0,$F$5+10,1,1)<60,"ok","Not met"),"") 0.24 Adverse r-g scenario =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(SUM(OFFSET('Adverse (r-g)'!$F$76,0,$F$5+1,1,10))=0,"ok","Not met"),"") =IF(OR('Adjustment scenario'!F57>60,'Adjustment scenario'!F77<-3),IF(OFFSET('Adverse (r-g)'!$F$57,0,$F$5+10,1,1)<60,"ok","Not met"),"") 0.26 * The stochastic simulations are provided mainly for information, as the Excel worksheet only allows for an approximation of what is done in the Commission's Stata model. Indeed, in this Excel worksheet, the size of the cone of the fanchart is assumed to be constant over different adjustment paths. In ther Stata model, it is a non linear function of the level of debt, as shocks (in particular interest rate shocks) have different impacts according to the level of debt ratio. ** In case a smaller adjustment than the one implied by criterion 1 and criterion 2 is sufficient to ensure that debt is brought (and/or remains) below 60% of GDP under the adjustment scenario and all deterministic stress tests while ensuring that the criterion 3 is met, then that smaller, 'eased-up' adjustment is chosen. * The average change in debt is computed from the year before the start of the reference trajectory or the year in which the excessive deficit procedure is projected to be abrogated, whichever occurs last, until the end of the adjustment period. ** The deficit benchmark is applied in terms of change in SPB during the transitory period of 2025-2027 and in terms of change in SB thereafter. 0.28 Table 4 - Main fiscal variables 0.3 2025 2026 2027 2028 2029 2030 2031 0.32 Annual adjustment (change in SPB) ='Adjustment scenario'!G12-'Adjustment scenario'!F12 ='Adjustment scenario'!H12-'Adjustment scenario'!G12 ='Adjustment scenario'!I12-'Adjustment scenario'!H12 ='Adjustment scenario'!J12-'Adjustment scenario'!I12 ='Adjustment scenario'!K12-'Adjustment scenario'!J12 ='Adjustment scenario'!L12-'Adjustment scenario'!K12 ='Adjustment scenario'!M12-'Adjustment scenario'!L12 0.34 Net primary expenditure growth ='Adjustment scenario'!G79 ='Adjustment scenario'!H79 ='Adjustment scenario'!I79 ='Adjustment scenario'!J79 ='Adjustment scenario'!K79 ='Adjustment scenario'!L79 ='Adjustment scenario'!M79 0.36 Headline balance ='Adjustment scenario'!G77 ='Adjustment scenario'!H77 ='Adjustment scenario'!I77 ='Adjustment scenario'!J77 ='Adjustment scenario'!K77 ='Adjustme