Abstract
The article on the contemporary approach analysis of sovereign debt reveals the basic structures of national economy alternative financing. The methodology of system dynamics is applied to explain the sovereign debt burden pressure feedback process. The main effects of resilience to external shocks are explored. The problem of dynamic balancing between long-term economic development and short-term financial stability is detected. The analysis for borrowing capacity of the national economy is explored using the system dynamics methods. The resource curse “vicious cycle” should be overridden by increasing total factor productivity and decreasing sovereign debt. The main findings of the article concern the nonlinear relationships in the national economic debt system and reveal the issues of the sovereign debt trap enhanced by the resource type of economic development. The model developed in this article reflects the main role of innovations (total factor productivity growth) in coming out of the “resource curse” debt trap. The hypothesis that sovereign debt can be eliminated arises from the possibility of autonomous national economic development and endogenous business cycle stabilization. Such a point of view allows to capture the important interrelationships between the national economic development and external borrowings due to the concept of policy resistance implementation. It is indicated that the complex systems modeling likelihood to develop the sovereign debt policy for demonstration of the negative impact of debt trap on economic development. In order to achieve the results, issued in the article, a basic control loop model was developed using reference mode data with appropriate initial structure model construction. JEL classification: B22, C53, C61, E17, E5 Manuscript received 30.04.2020
Highlights
Introduction and research problemSovereign debt is a result of national financial system underperformance, which is influenced by the disequilibrium in economic, social and technological sectors and many of the side effects (Sterman, 2000, p. 7)
We focus on managing the sovereign debt burden – balancing the interests of internal shortrun and long-run economic development with the necessity to pay off the external debt as well
Since 2008 the widening gap between the rent in absolute values and the sovereign debt exists. It means that the real value of national resources constantly and increasingly lags behind the external debt, which increases the vulnerability of the national economy to the vicious growth cycle reflects the trend of sovereign external debt to growth simultaneously with rent and GDP falling and reflects the change in the Total Factor Productivity (TFP)
Summary
Introduction and research problemSovereign debt is a result of national financial system underperformance, which is influenced by the disequilibrium in economic, social and technological sectors and many of the side effects (Sterman, 2000, p. 7). We focus on managing the sovereign debt burden – balancing the interests of internal shortrun and long-run economic development with the necessity to pay off the external debt as well. The capacity resilience of the resource – oriented economies is not enough to resist the external debt vulnerability.
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