Inflation Determinants and its Effect on Public Debt: The Case of Egypt

The substantial literature has observed the relationship between public debt and economic growth in different countries and the performances of public debt on economic growth differed from country to country. Therefore, it is essential to have unique researches for each country. Hence, this study aims to identify the relationship between public debt and economic growth in Sri Lanka using four decades' latest data. This was examined using econometrics techniques and annual time series data from 1980 to 2019 aiming to fulfill the objective of the effects of public debt on economic growth in Sri Lanka. The Jacque Bera (JB) and Augmented Dickey-Fuller (ADF) tests are used to investigate the properties of the macroeconomic time series of normality and unit-roots respectively. The Engel-Ganger residual-based model used to investigate the long-run relationship between variables and the short-run relationship of variables investigated using the Error Correlation Model (ECM). The study shows that both public domestic debt and public external debt have expanded in Sri Lanka in the studying period. Further, public external debt became closer to the public domestic debt during that period. Public domestic debt, public external debt, and public debt servicing have a negative and significant relationship with economic growth. Domestic debt has a powerful adverse effect on economic growth in the long run with comparing external debt. Further, the negative effect of external debt is stronger than domestic debt on economic growth in the short run. This study recommends that the Sri Lankan government needs to have some limitations regarding the level of borrowing due to adverse effects on economic growth and effective usage of public debt is essential for Sri Lanka.

This study investigated the existence of causal relationship between public debt sustainability variables and intergenerational equity West African from 1990 to 2020. The study employed ex-post facto research design using secondary annual panel data obtained from various publications of International Monetary Fund (IMF) and the World Development Indicators (WDI) for the periods 1990-2020. The data were analyzed using Panel Granger Causality techniques. Results from the study revealed a unidirectional causal relationship running from total reserves to tax revenue as well as trade openness to total reserves, no causal relationship between public external debt, exchange rate, tax revenue and foreign reserve and a bidirectional causality between trade openness and public external debt which implies a two-way relation between trade openness and public external debt. Hence fiscal policy authorities in West Africa, particularly the debt management offices (DMOs), should prioritize prudent debt management and adequate reserve accumulation to promote tax smoothing., sufficient reserve accumulation, and careful balance between borrowing and reserve preservation. Striking the right balance would contribute to debt sustainability, currency stability, investor confidence, and long-term economic resilience.

The impact of public sector debt composition on the private sector is a matter of curiosity. This article explores the crowding-out effect of public debt and public investment on private investment in Turkey from 1975 to 2020, utilising the ARDL method. The findings reveal that public investment, public domestic debt stock, and external debt service create a crowding-out effect; on the other hand, the public external debt stock has a crowding-in effect on private sector investments. In this study, the crowding-out effect of public debt, which has not been directly related to private sector investments in the literature, is tried to be examined.

Public expenditure has characterised the administrative functions of centralised and decentralised governments and authorities in society throughout human economic history. Making the necessary arrangements to meet the basic and essential needs and wants of citizens and residents of an economy plays a dominant role in the mandate and discharge of duties by various governments across the globe. However, a major economic challenge to most elected governments or otherwise relates to how to ensure efficiency in the management of public debt. The main purpose of this research was to examine the implications of growing public debt for the Ghanaian economy. The quantitative approach to scientific inquiry was adapted and used in the research. Specifically, the cross-sectional design formed the basis of the study. Data required for the current research were obtained mainly from secondary sources. These included textbooks, peer-reviewed articles published in journals, grey literature and newspaper publications. Other sources were Google Search Engine, including Index Mundi, OECD, UK Office for National Statistics, and electronic databases of the World Bank, MacroTrends, Country Economy.com, Trading Economics and Bank of Ghana, among other significant sources. Respective data on selected global regions and their indebtedness to China, leading African economies with significant borrowing from China, debt-to-GDP ratios for forty-four selected global economies during 2019 and 2020; respective data on Ghana’s annual GDP values and growth rates from 1960 through 2020, annual public debt values from 1986 through 2020 and annual public expenditure values from 1983 through 2020 were collected and used in the research. Descriptive statistics and regression models were used to describe the research variables and to evaluate their behaviour over the stated time frame on total economic output. The research revealed that significant government borrowing has become a common universal practice in recent fiscal years. The COVID-19 pandemic had devastating effects on most global economies, including Ghana, during the 2020 fiscal year. However, the Ivory Coast, Djibouti, Mauritania, Gabon, Tunisia, Gambia and India demonstrated robustness and resilience in the management of their respective economies and recorded decreases in their respective debt-to-GDP ratios compared to 2019. Ghana’s debt stock increased by US$16.72 billion from 2013 to 2016 and US$21.12 billion from 2017 to 2020. The respective average debts per head during 2016 and 2020 were US$1,102.64 and US$1,690.38. Findings from the research revealed a positive and significant relationship between Ghana’s public debt and GDP (coefficient value = 1.5074212; p = 0.000, p < 0.05) and a positive but non-significant relationship between public expenditure and GDP (coefficient value = 4.39162947; p = 2.989, p > 0.05). Public debt accounted for about 89.26% of the variation in GDP from 1986 through 2020, while public expenditure accounted for nearly 92.89% of the variation in GDP from 1983 through 2020. Ghana’s estimated growth rate for 2020 (0.88%) remained the lowest since 1984. The statistical analysis confirmed and validated the effect of public debt on GDP, called for fiscal consolidation to improve public spending and debt accumulation, and the need for revenue mobilisation strategies to be improved, strengthened and practically implemented to narrow the gap in the annual budget funding amount (ABFA). The study revealed pervading challenges to the effective management of the Ghanaian economy during 2020 and the essence of instituting prudent and pragmatic measures to mitigate foreseen and unforeseen external and internal economic shocks to assure comparative economic management success in subsequent fiscal periods, and to effectively douse the stoking flames of generational debt.

The majority of developing nations worldwide have relied on borrowing to fund their operations and development. Studying the primary macroeconomic drivers of public debt is essential to escaping the debt burden. Using the ARDL model, this study investigates the macroeconomic determinants of Bangladesh’s public debt from 1975 to 2022. The macroeconomic factors that influence public debt are co-integrated, according to the estimated results of the ARDL bound test. In short run government spending, import and FDI significantly reduces public debt where GDP growth insignificantly reduces public debt. In the long run import and inflation rate significantly reduces public debt while export significantly increases public debt. Also, GDP growth insignificantly increases public debt. Study recommends that Bangladesh should always pursue responsible monetary and fiscal policies because they foster an atmosphere that is conducive to economic expansion. Establishing such a setting is a crucial precondition to using public debt effectively.

This study is an effort to determine the effect of public external debt on economic growth in Ethiopia. In doing this, the study used an Autoregressive Distributive Lag model (ARDL modeling) to analyze Ethiopian data from 1981 to 2014 with GDP per capita as a function of stock of public external debt, public external debt servicing, human capital, physical capital, labor force, trade openness and policy change dummy. The empirical result reveals that in the long-run high level of stock of public external debt has a significant negative effect on economic growth. Therefore, there is an evidence for the “Debt overhang” and “Conventional view” of public debt in Ethiopia. On the other hand, public external debt servicing has a negative coefficient but insignificant in affecting economic growth. That is, there is no evidence for the “Crowding out” effect of public external debt in the country. Besides, human capital is found to have negative impact on GDP per capita. Moreover, Labor force has a significant positive impact but private capital formation and trade openness are insignificant in explaining the Ethiopian economy. Hence, the study’s implication is that the government and policy makers should improve the existing policies on public external debt management through investing in productive activities and sectors. Moreover, the government should implement structural change, public sector and tax reform, and diversifying the economy so as to generate more revenue in domestic. Keywords: ARDL Approach, Economic Growth, Public external debt, Public external debt Servicing JEL Code : G29 DOI: 10.7176/JESD/10-13-04 Publication date: July 31 st 2020

<p><big>Traditionally, conditions of sustainability of the public debt have long been related quite exclusively to fiscal policy and to budgetary parameters. However, the interaction between fiscal and monetary policies regarding the fixation of the interest rate is fundamental. Indeed, a simple analytical modelling shows that if the nominal interest rate increases exponentially with the public debt, because of a default (credit) risk premium, if the confidence of investors is fundamental, conditions of sustainability of the public debt could be much more difficult to comply with. Indeed, if the interest rate is risk-free, values for which the public debt can be sustainable are less constraining if the long-term GDP growth rate is high, or if the long-term risk-free nominal interest rate is small. They are also less constraining if the country decides to turn to a non-negligible primary budget surplus in case of a high public debt. However, if the interest rate exponentially increases with the public debt level, in case of a significant importance of the default (credit) risk premium, these parameters have very limited consequences on sustainable and equilibrium public debt levels. The sustainable public debt that a government should target is then much smaller than in absence of this risk premium.</big></p>

This research aimed to explore the sustainability of public debt with changes in the South African regime from 1960 to 2020. Annual data was obtained from the South Africa Reserve Bank, and the Markov-switching autoregressive (MS-AR) model was employed to describe the public debt process in South Africa. Compared to traditional endogenous modelling, the process explicitly allows for the possibility of regime changes. Regime 1 defines the stages of high public debt, and regime 2 describes periods of a downward trend in public debt. The results reveal that in regime 1, there is a 98% likelihood of remaining in high public debt and a lower probability of 1.76% switching to a lower public debt regime. Also, when the system is in a lower debt regime, there is a 98.2% likelihood of remaining in a lower public debt state and a lower probability of 1.74% switching to a higher public debt state. The expected average duration of a period of higher public debt is 56 years, while the average duration of a lower public debt regime is 57 years. This implies that it is only in an extreme event that public debt can switch from a high-debt regime to a low-debt regime and vice versa. Hence, it is suggested that the government implement policies knowing that public debt will not decline suddenly.

The article provides comparative analysis of modern financial tools used in domestic and foreign practice of public debt management and substantiates possible adaptation of best practices of leading countries of the world to reduce the debt level in Ukraine. The volume of world debt is analyzed, and it is found that developed economies account for 2/3 of its total volume, and developing countries - 1/3. It is noted that one of the main indicators of public debt is the ration of its amount to GDP. According to the International Monetary Fund (IMF), the Top 10 countries with the highest public debt to the GDP ratios are listed below. The countries with the largest amount of outstanding debt to the IMF are indicated. Despite growing public debt in some countries of the world, exceeding permissible level of public debt in relation to GDP by several times, the countries have stable economic situation, develop international partnerships and economic relations, are attractive to creditors and investors, and ensure increased level of the population welfare. This is made possible by efficient management of public debt, effective and continuous control over its size, and timely implementation of modern financial tools aimed at reducing the debt burden. Financial tools of public debt management in developed countries are systematized. Some directions of adaptation of foreign experience using financial tools of public debt management in Ukraine, the main ones being the issue of “green”, infrastructure and mortgage bonds are offered. To increase confidence of investors (residents and non-residents) in new financial tools of public debt management, it is necessary to reduce corruption risks, improve the country’s investment and credit ratings, and ensure timely payment of public and corporate external debt.

This study examines the relationship between public debt and inflation rates in Kenya from 2011 to 2021 using the Vector Autoregressive (VAR) model. Despite the models likeAutoregressive Integrated Moving Average (ARIMA), Seasonal Autoregressive Integrated Moving Average (SARIMA), and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) gaining popularity in time series analysis, the Vector Autoregressive model, being multivariate, is relevant in analyzing two or more time series variables simultaneously, benefiting from the bi-directional causality and providing a better outlook into the flow of the dynamic interaction between inflation and public debt. The main objectives are modelling the Vector Autoregressive model and forecasting future trends to provide insights for policymakers. Additionally, the methodological approach comprises descriptive statistics, stationarity tests, normality tests, and the Vector Autoregressive model. Descriptive statistics reveal significant variations, with public debt increasing from 1.35 trillion KES to a peak of 8.2 trillion KES, and inflation rates ranging from 3.2% to 19.72% for the period from 2011 to 2021. The Augmented Dickey-Fuller (ADF) test confirmed that both time series were stationary at their levels. The Vector Autoregressive model, chosen for its ability to analyze dynamic interactions, indicated a significant relationship between the variables, with inflation showing strong self-persistence (coefficient of 0.8731, <i>p</i> < 2 × 10<sup>−16</sup>), though public debt did not significantly impact inflation in the model (<i>p</i> = 0.5592). The models R-squared values, 95.82% for public debt and 84.74% for inflation, highlight its strong explanatory power. Moreover, findings indicate that while public debt does not directly affect inflation within the model lag structure, inflation exhibits a strong self-persistence. The model R-squared values are 95.82% for public debt and 84.74% for inflation, demonstrating high explanatory power. Recommendations include the implementation of a robust debt management strategy, emphasizing sustainable borrowing and enhancing revenue generation to mitigate inflationary pressures. Further research is recommended to explore the broader macroeconomic impacts of public debt on economic growth and employment in Kenya.

Purpose: The study applied the threshold regression method proposed by Hansen (1999) with panel data (Panel Threshold Regression-PTR) to determine the existence of threshold effects and threshold values of public debt affecting the economic growth of ASEAN+3 countries. Design/Methodology/Approach: The model of the impact of public debt on economic growth was developed by the authors based on the study by Egert (2015) and conducted by the authors using three samples, including all countries, high-income countries, and middle-income countries for the period 2004-2015. Findings: The study results showed that, with the sample of all ASEAN + 3 countries, two public debt thresholds on GDP were 26.96% and 72.53%. With a sample of high-income countries, one public debt threshold on GDP was 65.80%. For the sample of middle-income countries, two public debt thresholds on GDP were 26.96% and 72.53%. More specifically, for middle-income countries, at public debt levels below 26.96% of GDP and from 72.53% of GDP, public debt will have a negative and statistically significant impact on economic growth. At public debt levels ranging from 26.96% of GDP to 72.53% of GDP, public debt does not affect economic growth, but these levels promote public expenditure that positively affects economic growth. Practical implications: Based on the research results, policymakers can use these thresholds in managing national public debt. Originality/Value: Although this study organically builds upon recent studies about public debt and economic growth, it provides a new method to determine the effect of public debt on economic growth using the threshold regression method proposed by Hansen (1999) with panel data (Panel Threshold Regression-PTR).

Purpose: The aim of the paper is to examine the existence or not of a long run or a short run relationship between public debt and economic in Niger and investigate the significance of this relationship. Approach/Methodology/Design: The study first applied time series econometrics tests such as Augmented Dickey-Fuller (ADF) unit root test, Bound cointegration test and Auto Regressive Distributed Lag (ARDL) on annual data obtained from the International monetary fund (IMF) and the West African States Central Bank (BCEAO). The observations cover the period from 1970 to 2019. The study then performed some residual tests including serial correlation, normality and heteroskedasticity for the accuracy of the prediction of the model. Findings: The empirical results showed no long run relationship between public debt and economic growth in Niger. The short run analysis revealed that public debt and budget balance have short run causal effects on economic growth in Niger. The coefficients are significant at 10% significance level. Practical Implications: This article gives valuable information to Niger policy makers regarding the effects of public debt on Niger economic growth. The article highlights the effects that public debt has on economic growth in Niger in the short and long run. Therefore helping policy makers decide whether to increase or reduce the borrowing trend. Originality/value: The results of the paper give valuable information on the relationship that public debt may have with economic growth in Sub Saharan African countries with the similar macroeconomic indicators with Niger.

The paper examined the causal nexus between public debt and economic growth in Nigeria between 1970 and 2010 using a Vector Autoregressive (VAR). The variab les used in the study were tested for stationarity using the Augmented Dickey Fuller and Philip Perron test. The result showed that the variables are stationary at first differencing. Co-integration test was also performed and the result revealed the presence of co-integration between public debt and economic growth. The co-integration results show that public debt and economic growth have long run relationship. The findings of the VA R model revealed that there is a bi-directional causality between public debt and economic gro wth in Nigeria. The paper concluded that public debt and economic growth have long run relationship, and they are positively related if the government is sincere with the loan obtained and use it for the development of the economy rather than channel the funds to their personal benefit.

This study examines the impact of public debt on economic growth and investment in Sri Lanka during the period from 1977 to 2017. The two model specifications, growth model and investment model, are estimated using the Johansen Cointegration technique and the Vector Error Correction Model (VECM) specified under the Vector Auto Regressive (VAR) framework using annual data for the period of 1977-2017. The results of the two models reveal that public debt, which consists of foreign debt and domestic debt, has a significant and positive impact on economic growth and investment in the long run. In the short run, a significant association between public domestic debt and economic growth as well as total public debt and investment is observed, suggesting mixed results. Debt service payments in the long run show a significant negative effect on both economic growth and investment, reflecting a crowding out investment. The finding suggests that using government debt for priority investment expenditures with a prudent debt management strategy to curtail the impact of crowding out investment will have a favourable impact on economic growth of the country, particularly in the long run.

Testing for serial correlation and random effects in a two-way error component regression model