The Dynamic Impact of Public External Debt on Capital Formation in Sub-Saharan Africa: The Pooled Mean Group Approach

The increasing reliance on public external debt stocks in Africa and other developing countries has raised the question of debt sustainability, especially in the face of Covid-19, which has forced many counties (both developed and developing) into an unforeseen and unplanned recession. This study contributes to the literature on debt sustainability by examining the effect of public debt on capital formation in Sub-Saharan Africa (SSA) from 2000 to 2008 using the pooled mean group estimation approach. The debt variables considered are external debt stock, debt service on external debt, and interest payment on external debt. Consistent with the overhang theory, our results show that increasing external debt stock and interest payment on external debts only have a marginal impact on capital formation in the short run and exerts a serious negative effect in the long run. Our results also show that debt service burden has a positive effect on gross fixed capital formation in the long run. Therefore, we argue that despite being faced with a huge debt service burden resulting from large external debt stock, SSA countries are not neglecting investments in critical infrastructures needed to drive economic growth. However, we recommend that increasing government revenue base, minimizing economic waste associated with public expenditure, and intensifying negotiations for debt relief may be a plausible way out.

Evaluation of the debt policy of the southern macroregion subjects in modern conditions

The relevance of the topic is due to the fact that debt crises have an extremely negative impact on the national economy, which implies the need for constant attention on the part of the government to issues of public debt management in order to timely, identify possible violations of debt stability. The subject of the research is the debt sustainability of the constituent entities of the South of Russia as the ability of the constituent entities of the federation to timely and fully service the public debt without significant adjustments to the balance of income and expenses. The aim of the research is to assess the debt sustainability of the constituent entities of the South of Russia and develop measures aimed at increasing it in order to prevent the emergence of an imbalance in regional finances and reduce the likelihood of debt crises. An increase in government borrowing rises budget spending on public debt servicing and can provoke an imbalance in the financial system. Diversification of the debt portfolio helps to ensure its balance. The structure of the debt portfolios of the constituent entities of the Federation may include budget loans, government guarantees, government securities, loans from credit institutions and other instruments. The article notes that the debt sustainability of the constituent entities of the Russian Federation directly depends on the decisions made at the federal level and the amount of government spending directed to specific regions. Therefore, it is necessary to maintain such a level of debt sustainability, which will prevent the emergence of an imbalance in regional finances and reduce the likelihood of debt crises. This presupposes the application of uniform recommendations for assessing debt sustainability in all constituent entities of the Russian Federation. The analysis of the volume and structure of the state debt of the constituent entities of the South of Russia, carried out in the article, made it possible to conclude that the debt policy of the macroregion is fragmented: the structure of debt portfolios is heterogeneous; a change in the level of debt burden can be associated with both an increase in tax and non-tax revenues, a decrease in the amount of public debt, and with reverse processes.

Public Debt Frontier: A Python Toolkit for Analyzing Public Debt Sustainability

This study proposes a synthetic visual indicator with which to perform debt sustainability analysis using dynamic general equilibrium models. In a single diagram, we summarized the general equilibrium relationships among economic activity, government budget, and the maximum amount of sustainable public debt. Then, we measured sustainability using the distance of actual debt from the model-consistent maximum debt. This indicator can be implemented with any DSGE model; as a backing theory, we used a neoclassical model augmented with endogenous tax revenues, disaggregated public spending, different production technologies for public and private goods, non-atomistic wage setters in public labor (unions), and a fully specified maturity curve for public bonds. We provided an example of its usage using the case of Greece during the last public debt crisis. To perform the numerical analysis, we developed original software, whose advantage is allowing an audience without expertise in DSGE models to perform general equilibrium debt sustainability analyses without requiring an understanding of the technicalities of DSGE models.

FISCAL POLICIES IN PANDEMIC TIMES: EUROPEAN EXPERIENCES

The pandemic recession was fundamentally different from ordinary recessions, and thus required a different policy response. We review the empirical literature on fiscal consolidation and fiscal multipliers. Then, we assess the impact of fiscal policies on the pace of recovery and public debt sustainability. A premature or a strong fiscal consolidation might result in lower rates of economic growth and elevated public debt as a share of GDP. We critically analyze different adjustment paths across Europe and offer policy-relevant recommendations. The issue is particularly relevant for countries with a strong fiscal stimulus and moderate to high levels of public debt.

Clustering of Russian Regions by Level of Debt Sustainability

The subject of the paper is the assessment of regional debt sustainability in accordance to the Budget Code of the Russian Federation. The relevance of the study is due to the aggravation of the regional debt problems at the end of 2020 and the need to have an assessment system that allows to timely respond to a decrease in the level of regional debt sustainability. The novelty of the study consists in the analysis of the system of debt sustainability indicators and their threshold values using the methods of cluster analysis. The article aims to examine if the current assessment system allows to classify regions by the level of debt sustainability quite clearly. As a result of the study, it was shown that the used debt sustainability indicators partially duplicate each other, and the methods of their calculation and the established threshold values discriminate against subsidized regions. In addition, it was shown that the grouping of regions based on the current assessment system does clearly distinguish between regions with high and medium levels of debt sustainability. The conclusion of the study is that in order to improve the system for assessing debt sustainability, it is necessary to change the set of debt sustainability indicators and the procedure for calculating them, as well as to set appropriate new threshold values for the new set of indicators. The prospect of the study is to conduct a similar analysis based on data for 2020 and refine new thresholds for debt sustainability indicators.

External Debt Burdens and Economic Growth: A Vector Error Correction Approach from Nigeria

This study examined the effect of external debt burden on the growth of Nigeria economy. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1986-2019. Nigeria real gross domestic was proxied for dependent variable while debt servicing; external debt stock, debt overhang, debt sustainability and crowd-out effect of external debt were proxies for independent variables. The study employed multiple regression models to estimate the relationship that exists between external debt burden indicators and Nigeria economic growth. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pairwise causality tests were used to conduct the investigations and analysis. The study findings revealed that 72 percent of the variations in Nigeria gross domestic products can be explained by the changes in external debt burden indicators. The results indicated a negative coefficient with external debt stock and debt overhang while a positive coefficient with debt sustainability, debt servicing and crowd out effect of external debt on Nigeria gross domestic products. From the findings, the study concludes that external debt burdens significantly affect growth of Nigeria economy. We recommend that the fund borrowed should be effectively managed, the federal government should laydown guidelines in terms of defining the purpose, duration, moratorium requirements and commitments, negotiation among others including conditions for external debt loans. Government should initiate and develop policies that will address the fundamental causes of external debt.

Analysis of External Debt Sustainability in Mongolia: An Estimated DSGE Approach

In this study, we assess the effects of the structural shocks on the external debt sustainability in Mongolia, based on an estimated small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model with the traded, the non-traded, and the mining sectors. The impulse response results show that the traded sector’s productivity shock, the commodity price shock, the mining output shock, and the foreign interest-rate shock have a decreasing effect on external debt accumulation in Mongolia, whereas the non-traded sector’s productivity shock, the household preference shock, and the government spending shock have an increasing effect on the same. Furthermore, we assess Mongolia’s external debt sustainability under the COVID−19 pandemic shock. Under our assumed pandemic scenario, Mongolia’s external debt will increase by 30% from its steady state over the next 10–28 quarters. Our recommended solution in this study is to develop the traded sector, instead of the mining sector, to maintain sustainability of the external debt and to decrease vulnerability of the economy.