THE RELATIONSHIP BETWEEN THE CURRENT ACCOUNT BALANCE AND ITS DETERMINANTS OF SELECTED MIDDLE-INCOME COUNTRIES

Abstract

The IMF’s external sector report 2018 indicate that global current account balances are 40-50% are now excessive rather than appropriate. The fact that persistent excess imbalances are pose risk to global economy stability and putting a pressure on international trade relations. Therefore, individual economies around the globe are trying harder to fit into the global challenges which associated with risks and require policies adjustment to reduce the excess imbalances. The objective of this study is to analyse the role of debt management indicator towards the current account balance. Panel data of 13 countries is used from 1990 to 2015 for estimation which involved the Pooled Mean Group (PMG) estimator to estimate the long run relationships between debt management and current account balance. The study found evidence of long run relationships between GDP per capita growth, fiscal balance, net foreign asset, debt management, trade openness and current account balance. The variable of debt management indicator has a weak link to current account balance or debt sustainability. This study suggests several policies implications to policy makers. To strengthen the external sector position, the development of domestic debt market through fiscal and monetary policy is vital as a pragmatic step to reduce dependency on external borrowing. In addition, debt management strategies play a significant role even though relatively small in strengthening current account balance position.