Estimate model interest rate sovereign debt financing

Ministry of Finance

An estimation model used in determining the total expected interest costs due to financing the national debt. The results are published in the budget table in the national debt budget.

Last change on 27th of December 2024, at 14:06 (CET) | Publication Standard 1.0

• Publication category: Other algorithms
• Impact assessment: Field not filled in.
• Status: In use

General information

Theme

Public finance

Begin date

1-2010

Contact information

[e-mail]

Responsible use

Goal and impact

The forecasting model calculates the expected interest cost of debt financing. The results are published in the budget table in the national debt budget. This estimate provides insight into the cost of debt financing that follows from the balance of expenditures and revenues of central government. The model does not use personal data. The data used by the model are the expected financing balance of the central government and the expected interest rates, as published by the CPB. The outcome is part of the political decision-making in the budget process.

Considerations

The model calculates the expected interest costs due to financing the national debt. These data are included in the budget of the Ministry of Finance.

There are no drawbacks to deploying the model. It is deployed only as a source of information and no automatic decision-making takes place.

Human intervention

No automatic decision-making takes place. Interest charges are calculated and the result is included in the budget. These data are part of the political decision-making process in the state budget process.

Risk management

The risks of use are low. The model does not use personal data. The calculated data are checked within the Ministry of Finance in the regular budget process. The estimate of interest expenses is adjusted several times a year on the basis of the interest expenses realised in the meantime and newer expectations of the financing balance and interest rates. The final realised interest expenses and the deviation from the expected interest expenses are published annually in the annual report of the Ministry of Finance.

Legal basis

The legal basis for budget preparation is regulated by the Comptabiliteitswet 2016 (CW). Specifically for interest expenses, this is regulated in Article 2(10)(e) CW.

Links to legal bases

Comptabiliteitswet 2016: https://wetten.overheid.nl/BWBR0039429/2023-09-26

Elaboration on impact assessments

No processing of personal data

Operations

Data

To make a prediction of interest costs, the interest costs already fixed for the coming years are used, as well as the expected financing balance for the coming years and the expected interest rates published by the CPB. In addition, realised interest costs are used to adjust the model. No personal data are processed.

Technical design

The model to calculate the interest cost estimate uses 3 components:

• Existing public debt. Of the existing debt, the cash flows and interest costs are fixed in the financial records.
• The refinancing of the existing national debt. The amount of refinancing is fixed, but the interest rate at which it must be refinanced is not yet fixed.
• The expected financing balance. The financing balance refers to the difference between expenditure and revenue and is the amount to be borrowed by the central government.

Based on the above components, the model calculates the expected interest costs for the coming years. In fact, the calculation is nothing more than a price x quantity, with the expected price (the interest rate) being determined by the CPB and the expected quantity (the financing balance) being determined internally by the Ministry of Finance based on the budgets of all departments. The interest cost estimate is adjusted several times a year using the interest cost realised in the meantime and newer expectations of the financing balance and interest rates.