Probabilistic Approach to the Future Course of Fiscal Stability in Turkey: 1958 – 2025

Abstract

This study gauges the fiscal stability in Turkey with a forward-looking approach using the fan-chart as a tool. Succinctly speaking, this tool portrays the probability distribution of each public debt realization in the forecast horizon. We construct this chart by simulating the debt/GDP ratio one thousand times using the bootstrapped error terms within a five-year forecast horizon. Our findings indicate that the AR(1) coefficient in the data generating process has a value less than unity which implies overall fiscal stability via an implosive debt pattern. Also, the simulation results indicate that the baseline scenario is around 25 % for the debt/GDP ratio over the forecast horizon and even in the worst-case scenario, the debt/GDP ratio is not likely to exceed 40 % level with a probability of 90 %.