## Debt cancellation

Debt cancellation is the partial or total forgiveness of debt contracted by the General Government. In general, it results from a bilateral agreement between a creditor and a debtor to partially or fully cancel or forgive a liability (debt), which the debtor incurred towards the creditor.

## Debt Sustainability Analysis (DSA)

Debt Sustainability Analysis (DSA) consists of a set of methodologies that allow for the evaluation of liquidity and solvency conditions of sovereign debt. It depends on the hypotheses assumed, resulting in some degree of uncertainty, but it allows for synthetic conclusions.

## Deflator

A deflator is a price index that expresses the changes in prices of a given variable over a time interval, for a product or a basket of products, and is used to remove the effect of price changes on the value variations (called the nominal variations or in current prices), for the same period, thus eliminating the effect of price changes and leaving only the changes in volume (also called real change). A deflator compares a reference period with a base period, and can be expressed as an index or as a percentage change. A value that has been adjusted using a deflator is called deflated. An example is the GDP deflator and that of its individual components.

## Discretionary fiscal policy

Discretionary fiscal policy reflects deliberate changes in the conduct of fiscal policy (as distinct from the operation of automatic stabilizers). Decreases in revenue and/or increases in expenditure are referred to as fiscal impulse and the reverse as fiscal consolidation.

This component can be measured through the change in the structural primary balance, although with limitations, as this indicator can be influenced by other factors. An alternative is to consider only the budgetary impact of legislative changes (e.g. European System of Central Banks methodology and European Commission methodology), despite the limitations in its measurement.

## Draft Budgetary Plan

The Draft Budgetary Plan is a document that must be sent to the European institutions by October 15, which presents the main aspects of the budgetary situation of the General Government and its sub-sectors for the coming year, based on a national budget proposal. This document describes the budgetary targets, the detailed measures to achieve these targets, and the macroeconomic assumptions underlying the budget. A Draft Budget Plan is not the same as a Draft State Budget.

## Due interest

Due interest is interest related to a terminated accounting period. Interest accrued between the most recent coupon payment date and the sale date of a bond. At the time of the transaction, the buyer pays the price of the bond plus accrued interest, which is calculated by multiplying the net daily interest on the loan by the number of days that have passed since the last interest payment.

## Dynamic effect

The dynamic effect corresponds to the annual change in the public debt ratio explained by the product between i) the difference between the implicit interest rate (r) and nominal GDP growth (γ) and ii) the debt ratio in the previous period [i.e. is the second term of the equation below]. In global terms, the annual variation in the debt-to-GDP ratio depends on the annual primary deficit, the stock-flow adjustment and the relationship between the implicit interest rate and economic growth, expressed as a percentage of GDP, i.e. :

Where ∆d is the variation in the debt ratio, t is the year, p corresponds to the primary deficit, r the implicit nominal interest rate on the debt, γ the nominal GDP growth rate and aj the stock-flow adjustment. In the absence of stock-flow adjustments, when the interest rate (r) is higher (lower) than the nominal growth of output (γ), the variation in the debt-to-output ratio is higher (lower) than the budget deficit ratio. Thus, the greater this differential, the greater the growth in the public debt ratio (corresponding to the dynamic effect) and vice versa.

This effect can be decomposed into interest effect and growth effect. The growth effect corresponds to the annual variation in the debt ratio explained by the evolution of output (in the denominator).

The interest effect corresponds to the annual variation in the debt ratio explained by the evolution of interest paid on public debt. The implicit interest rate is the average implicit rate of interest paid on all debt.