1) To sustainably maintain a debt-to-GDP ratio of 99%, the primary surplus needed is 1.5%. For a 78% debt-to-GDP ratio, the primary surplus is 0.5%. The difference is due to needing a larger surplus to sustain a higher debt level. 2) If the primary surplus is maintained at 1.2% from 2021-2030, debt is not sustainable and will rise above 100% of GDP. To get debt back down to 78% by 2030, the primary surplus would need to be 1.5%. 3) Allowing for variable macroeconomic forecasts and 5% or 30% of debt in foreign currency, debt dynamics are plotted

1. Assume that in the steady state the real interest rate
ASSIGNMENTThe fiscal response to the COVID crisis increased debt in many countries. As
we emerge from this crisis many are worried if current debt levels are sustainable. In this
exercise, we will use data from Country X to undertake a debt sustainability analysis. use
the excel template provided to answer the following questions. Also copy and paste each
answer onto this word document and submit as pdfaAssume that in the steady state the real
interest rate is = 3.5% and the real growth rate is = 2%. Calculate the primary surplus that,
in steady state, will deliver a sustainable debt of 99% of GDP (as in 2020). What about for a
78% debt-to-GDP ratio (as in 2016)? Explain the difference.bSuppose policymakers decide
that the primary budget surplus (deficit) will be 1.2% from 2021 to 2030. Calculate and plot
the debt dynamics given a constant real interest rate r = 3.5% and real growth rate g = 2%.
Is debt sustainable under this plan? Explain how your answer compares to that of Part 1.
What should the primary surplus be from 2021 to 2030 so that debt-to-GDP levels in 2030
are same as in 2016?cSo far we have only considered the case of a constant macro variables.
Assuming policymakers maintain a primary surplus of 1.2% of GDP, use the macro forecasts
provided in Table 1 (and in the Excel Spreadsheet) to plot the debt dynamics for the
following cases:5% of debt is denominated in foreign currency(ii) 30% of debt is
denominated in foreign currency