the explicit recognition of probabilities of events and associated risks. Useful insights for policy makers provided by a stochastic DSA include, _inter alia_ , the calculation of the probability that the public debt breach a threshold level that is prudent not to exceed. This is especially relevant when debt levels are high and breaching thresholds may impair a country’s access to certain sources of funding (e.g., IDA lending) or trigger pre-payment clauses in loan contracts. Besides, the explicit quantification of the probabilities of shocks help avoiding policy over-reactions that may arise when policy makers are _unduly_ focused on preventing events that are perceived to have deleterious effects on public finances because they fail to recognize that those events have a low likelihood of occurrence.<sup>5</sup> The stochastic DSA is also a useful tool for assessing the performance of policies aimed at mitigating fiscal risks and build resilience, such as fiscal consolidation reducing net borrowing needs and debt stocks.

**Table B1. Macro-fiscal framework 2014-2023.**

|**Variables**|**2013**|**2014**|**2015**|**2016**|**2017**|**2018**|**2019**|**2020**|**2021**|**2022**|**2023**|
|---|---|---|---|---|---|---|---|---|---|---|---|
|GDP at current prices (billion MRO)|1,252|1,299|1,418|1,566|1,756|1,973|2,218|2,493|2,803|3,151|3,543|
|GDP at constant prices, annual growth rate (%)|6.7|6.8|6.8|6.7|7.0|7.0|7.0|7.0|7.0|7.0|7.0|
|GDP deflator, annual growth rate (%)|-0.1|-2.9|2.3|3.5|4.8|5.0|5.1|5.1|5.1|5.1|5.1|
|Exchange rate MRO/USD (end of period)|302.9|276.4|273.3|273.4|275.6|278.1|280.7|283.4|286.1|288.8|290.1|
|Exchange rate MRO/USD (period average)|298.8|278.8|274.0|272.5|274.3|276.8|279.4|282.0|284.7|287.4|290.1|
|Exchange rate MRO/EUR (end of period)|417.7|381.2|376.8|377.1|380.0|383.5|387.1|390.8|394.5|398.2|400.1|
|Exchange rate MRO/EUR (period average)|412.0|384.5|377.9|375.8|378.3|381.7|385.3|388.9|392.6|396.3|400.1|
|Exchange rate USD/EUR (period average)|1.4|1.4|1.4|1.4|1.4|1.4|1.4|1.4|1.4|1.4|1.4|
|Real exchange rate (MRO/USD), index 2008=10|115.6|113.3|111.1|108.8|106.7|104.5|102.4|100.4|98.4|96.4|94.5|
|Total revenue (% GDP)|34.6|36.4|36.1|35.9|34.2|33.3|33.2|33.2|33.2|33.2|33.2|
|Domestic revenue|32.0|32.4|32.8|33.3|31.9|31.0|31.0|31.0|31.0|31.0|31.0|
|External grants|0.9|2.1|1.4|0.8|0.7|0.6|0.5|0.5|0.5|0.5|0.5|
|Net revenues from Oil|1.7|2.0|1.9|1.8|1.7|1.7|1.7|1.7|1.7|1.7|1.7|
|Total expenditure (% GDP)|35.7|36.0|35.5|35.3|33.9|33.3|33.2|33.2|33.1|33.0|32.9|
|Interest expenditure|1.3|1.4|1.2|1.2|1.1|1.1|1.1|1.1|1.0|0.9|0.8|
|Wages and salaries (emoluments)|8.5|8.4|9.1|9.1|8.6|8.6|8.6|8.6|8.6|8.6|8.6|
|Transfers and subsidies|5.7|5.7|3.9|3.6|3.0|2.5|2.0|2.0|2.0|2.0|2.0|
|Other current expenditure|1.4|1.5|1.3|1.0|0.8|0.7|0.7|0.7|0.7|0.7|0.7|
|goods and services|4.9|5.1|5.6|5.6|5.8|5.8|6.2|6.2|6.2|6.2|6.2|
|Capital expenditure|13.9|13.8|14.5|14.8|14.6|14.6|14.6|14.6|14.6|14.6|14.6|
|Primary balance (% GDP)|0.2|1.8|1.8|1.8|1.4|1.1|1.1|1.1|1.1|1.1|1.1|
|Overall budget balance (% GDP)|-1.1|0.4|0.5|0.6|0.3|0.0|0.0|0.0|0.1|0.2|0.3|

Notes: (*) Real exchange rate defined as the exchange rate MRO/USD (per.av.) deflated by GDP deflator and an assumption of a fixed 2% US inflation. Source: World Bank projections

> 5 The LIC DSF, for instance, conducts various stress tests to assess fiscal risks. For some countries, the shocks used in the stress tests appear too extreme and severe, but indeed they are very unlikely to happen. The LIC DSF could unintendedly over-exaggerate the risks emerging from these shocks because it looks at their size and not at their likelihood—in fact, there is no explicit probability measure associated with the stress-test scenarios. Failure to appreciate both size and probability of occurrence of shocks may bias policy decisions towards very conservative strategies weighting more the risk-mitigation objective, which are usually more expensive that others weighting that objective less.

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