Sovereign debt and post-war Ukrainian economic growth – system dynamics approach

Abstract

The aim of the article is to examine the post-war national economy, notably overburdened with significant war expenditures and the effects of sovereign debt restructuring in a wartime period. The research uses system dynamics modelling methods, operates with S-shaped growth, overshoot and collapse dynamic patterns. The oscillation patterns of behaviour have been used to demonstrate the scenario options of possible external debt minimization.The dynamic hypothesis about non-linear behaviour of post-war debt trajectory has revealed the intrinsic growth rate in debt-dependent economy and the inflection point of no return to stable economic growth without radical decision of sovereign debt cancellation. The direct consequence of a negative solution for debt cancellation would be the unpredictable, even chaotic fluctuations of national economic growth rate. Baseline simulation to prove the results of research has been provided. The embedded “dependent-economy” type of macrostructure does not allow to overcome the critical debt overhang level and needs a new national model with appropriate policy to stabilize the economy. Performance of post-war debt repayment depends mostly on an innovative fund, which can be created by export abilities in the framework of post-war recovery plan. The results of the research may be applied by national authorities responsible for macroeconomic debt policy. The obtained results of the study allow us to draw a conclusion about the impossibility of developing the national economy within the framework of the existing economic structure of the developing country. The debt trap, which cannot be eliminated, does not allow to develop the national innovative economy and ensure economic growth and development.
 JEL classification: E37, F34, F35, G28, H63