Analysis of contingent liabilities as a risk factor in public debt management and evaluation in terms of fiscal space: The case of Turkey

There are general risks and various financial risk factors in public debt management that endanger sustainability. Contingent liabilities, which are among the financial risk elements and used to characterize liabilities whose realization depends on the occurrence of certain events, are one of the important risks encountered in public debt management recently. The purpose of this study is to examine contingent liabilities, which are one of the risk factors in Turkey's public debt management, in terms of fiscal space. The main hypothesis of the study is that it will not be sufficient to look only at the public debt and budget deficits for fiscal stability in a country, and that contingent liabilities should also be taken into account for a healthy public finance structure. In line with this purpose and hypothesis, the study is discussed in three parts. In the first part, public debt management, contingent liabilities and the fiscal space are examined at conceptual and theoretical level, and the relationship of the concepts with each other is revealed. In the second part, the strategies followed by Turkey in public debt management in the post-1990 period are discussed and the situation of contingent liabilities is analyzed. Accordingly, it has been determined that these liabilities and the risks associated with these liabilities have increased in recent years. In the third and last part, as a first, Turkey's fiscal space was measured with the help of econometric time series based on the debt limit approach developed by Ostry et al., then the probability of exceeding the value of the fiscal space found was tested with the statistical Value at Risk technique. As a result, in Turkey, which seems to have a relatively low public debt, it has been found that contingent liabilities are a pressure factor that creates a threat on the fiscal space. This result is compatible with the hypotheses put forward.