**Debt policies can attenuate the exposure of the on-budget interest bill to macroeconomic shocks affecting the exchange rate and the domestic interest rates** . Interest payments in the government budget are currently low but could increase whenever unforeseen, unfavorable events raise the exchange rate and the domestic interest rates. Debt policies can help mitigating the sensitivity to these financial disturbances and the associated fiscal risks. Introducing the six debt strategies into the stochastic DSA permits an assessment of such opportunities for risk mitigation. Fan charts for each debt strategy are easily computed but it would be burdensome to report all of them. Instead, Figure D4 shows a single indicator summarizing the un-reported fan charts: the percentile 95 of the probability distribution of the interest-to-GDP ratio obtained in each debt strategy. This indicator is a standard cost-at-risk measure and gives the order of magnitude of how high the interest bill could jump if adverse shocks hit the Mauritanian economy. It is noteworthy that, again, the strategies seeking for more concessional financing—S5, S2, and S6—perform relatively better. They prove to significantly reduce the burden of interest payments that might have to be effectuated if adverse shocks occur. In addition, in the underlying fan chart of interest-to-GDP ratio for these three policies, the dispersion of outcomes around the expected path is quite small.

**Debt strategies should be geared towards macroeconomic risk management and cannot substitute fiscal policies as means to improve Mauritania’s debt sustainability.** Three relevant insights for country authorities result from the analysis of debt policies. Firstly, the differences across alternative debt strategies—even considering the optimal portfolios—are less important to render Mauritania’s public debt sustainable than the effect of a sound fiscal policy. Secondly, the way policy makers assess risks has relevant implications on debt management. The traditional DSA and MTDS methodologies in often cases apply arbitrary and large shocks (e.g., to exchange rates, interest rates, or both) in order to assess risks. The likelihood of these shocks, however, is very small and thus they are very extreme events that eventually may not discourage the adoption of debt strategies that do increase exposure to them. In Mauritania, for instance, historical data suggest the variance of the exchange rate against the US dollar is not too large—and the exchange rate paths in the stochastic simulations do preserve such a pattern. As a consequence, the strategies with heavy borrowing from concessional sources—which admittedly fuels exposure to currency risk—eventually perform better than others—and S5 is actually the optimal (unconstrained) policy. Thirdly, optimal debt strategies are useful guides for debt management, but it should be recognized that financial cost, risk, and risk tolerance are not the only variables of concern. Public debt managers need to consider other objectives as well. For Mauritania, there is a need to develop the domestic government securities market for both deficit financing and monetary policy implementation. Policies seeking to boost domestic borrowing will help in that regard, despite bringing extra financial cost and risk.

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