Debt strategies of European countries and vectors of implementation of best experience in the practice of external public debt management of Ukraine

Ivanna Moroz

doi:10.21303/2504-5571.2021.002023

Abstract

The policy of external and domestic public debt management in different countries has its own specifics, and its results are not always unambiguous. Thus, the existing recommendations of the International Monetary Fund and the Maastricht criteria prove that the maximum value of public debt to GDP should be no more than 60 %. Exceeding this limit can lead to a deterioration in financial stability, debt sustainability, and ultimately to a technical default of the state. However, the practice of public debt management in many developed countries shows quite opposite trends, as a significant excess of the Maastricht criterion not only does not lead to default, but on the contrary allows countries to accumulate the necessary financial resources to ensure stable economic growth. Therefore, the study of European debt strategies and their effectiveness is a very important issue, especially given the consequences of the COVID-19 pandemic for developing countries. Given the growing external debt dependence of Ukraine as a result of both the war with the Russian Federation and the COVID-19 pandemic, the search for a better experience of European debt policy and consideration of ways to adapt it to domestic realities are discussed in our article. Based on the analysis of the debt policy of European countries, the expediency of using debt rules, aimed at regulating both the country's debt security and the effectiveness of the use of public borrowing to stimulate economic growth has been proved. Cluster analysis of debt strategies of some European countries has shown that the high level of dependence on external public debt has a negative impact on economic security in general, because in the event of deteriorating macroeconomic situation, the likelihood of foreign investors selling government securities increases, and in the case of external loans from international financial and credit organizations – the risks of negative impact of burdensome non-financial obligations on the national economy grow.

Highlights

The slowdown in economic growth due to the negative shocks, associated with the COVID-19 pandemic, raises the issue of studying the issues of public external and domestic debt management
Research on public debt management, the impact of debt risks on economic development and economic security of the state, the principles of building debt policy strategies, as well as aspects of external debt dependence are among the main topics in the economic literature
The following methods were used in the study: – analysis and synthesis – in the study of scientific literature and determination of debt strategies of European countries and the effects of public debt on economic growth; – methods of cluster analysis – for the division of European countries into clusters according to the level of debt risk and debt dependence. – economic and statistical analysis and comparison – in the study of the effects of domestic and foreign public debt on economic growth; – economic-mathematical method – in the study of correlations between indicators of external and domestic debt of European countries and the dynamics of GDP and the dynamics of GDP per capita;

Summary

Introduction

The slowdown in economic growth due to the negative shocks, associated with the COVID-19 pandemic, raises the issue of studying the issues of public external and domestic debt management. The increase in external and domestic debt of the world due to the pandemic leads to an increase in their debt dependence and increased debt risks, which negatively affect economic security. Based on these positions, the authorities of the vast majority of countries face the task of choosing an effective strategy for public debt management in general and external debt in particular, which requires a thorough empirical study of approaches to debt dependence and efficiency of public borrowing. According to the scientist [2], governments around the world should resort to monetizing the state budget deficit in order to mitigate the inevitable stagflation and debt crisis

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Results

Conclusion