Analysis Of Debt Sustainability Research Articles

ASSESSMENT OF PUBLIC DEBT SUSTAINABILITY IN DEVELOPING COUNTRIES, TAKING INTO ACCOUNT THE STRUCTURE OF PUBLIC SPENDING AND INTERTEMPORAL CONSUMER BEHAVIOR

The paper estimates the sustainability of public debt in developing countries from 1990 to 2021 drawing on fiscal response function. The author proposes the modification of the Ramsey model that considers both saving behavior of the population and the structure of government spending in terms of their influence on fiscal policy effects. The findings are tested on the example of developing countries including the Russian Federation. We verify the model's conclusions in two stages. At the first stage, based on indicators of government expenditures’ structure and savings rate, we identify country clusters using the k-means method. At the second stage, for a certain groups of countries, we econometrically estimate the so-called fiscal response function, that is, the reaction of primary budget balance to debt accumulation in the previous period. We make estimates for panel data using a fixed effects model, as well as the generalized method of moments for a dynamic panel. Based on the estimates obtained, for a group of countries similar to Russia in terms of savings rates and the share of productive expenditures in the total share of government expenditures, there is a significant positive coefficient of the reaction of the primary budget balance to changes in public debt in the previous period. Thus, fiscal sustainability is achieved for the selected group of countries at the federal level during the period under review. However, risks at a regional level may, if events develop unfavorably, have a shock effect on the federal budget that requires an additional analysis of regional debt sustainability.

Debt Sustainability in Europe: An Analysis of Challenges and Policy Implications

This paper provides a comprehensive analysis of debt sustainability in Europe, offering insights into the challenges faced by European countries and proposing policy implications for achieving and maintaining fiscal stability. The European continent has encountered significant economic and financial challenges in recent years, necessitating a closer examination of public debt levels. The paper evaluates the factors influencing debt sustainability, assesses the current state of debt in Europe, and puts forward policy recommendations to address these challenges in the pursuit of long-term fiscal responsibility.

The Sustainability of External Debt and Economic Development in Nigeria

This study carried out an empirical investigation on an empirical analysis of external debt sustainability and economic growth in Nigeria covering the period 1981 to 2021. Data for the study were extracted from the Central Bank of Nigeria (CBN) statistical bulletin and world development index (WDI) 2020. The method of data analysis used is the linear regression method with the application of Error Correction Model (ECM). The major findings of the study reveal that there exists a negative and insignificant relationship between external debt sustainability and economic growth in Nigeria ( = -0.000206, p-value = 0.4955 > 0.05) and there is a bi-directional causality relationship between external debt sustainability and economic growth in Nigeria (p-value = 0.0005 < 0.05 and 0.0071 < 0.05). It is therefore the recommendation of the study that the government should ensure economic and political stability in order to enjoy the benefits of external debt and make the debt burden minimal and the government should acquire external debt largely for economic reasons rather than social or political reasons. This would increase the productivity of the nation.

Analysis of debt sustainability in Brazil

Resumo: Este artigo tem como objetivo discutir a sustentabilidade da dívida da economia brasileira, que está sob escrutínio desde 2013. As economias emergentes podem enfrentar instabilidade com balança de pagamentos ou aumento da inflação devido a uma possível desvalorização cambial. Assim, foram realizadas simulações prospetivas da dinâmica da dívida bruta utilizando dados disponíveis até 2023. Até 2040, sob as expectativas do mercado e certos pressupostos, a dívida bruta não parece explosiva. A Dívida Bruta do Governo Geral (DBGG) tende a aumentar no curto prazo, estabilizando-se no médio e longo prazo. Contudo, não é uma situação confortável, especialmente considerando que os níveis de DBGG estão acima dos países emergentes e dada a possibilidade de choques adversos nas variáveis ​​mais relevantes sobre a dinâmica da dívida. A combinação de “r – g” deve melhorar para que o Brasil tenha uma trajetória de dívida mais benigna. Palavras- chave: Sustentabilidade da dívida e economia brasileira Abstract: This article aims to discuss the debt sustainability for the Brazilian economy, which has been under scrutiny since 2013. Emerging economies may face instability with balance of payments or rising inflation due to a possible currency devaluation. Thus, prospective simulations of gross debt dynamics were conducted using data available up to 2023. Until 2040, under market expectations and certain assumptions, gross debt does not seem explosive. General Government Gross Debt (GGGD) tends to rise in the short term, stabilizing in the medium and long term. However, it is not a comfortable situation, especially considering that GGGD levels are above those of emerging countries and given the possibility of adverse shocks in the most relevant variables regarding debt dynamics. The combination of “r – g” should improve for Brazil to have a more benign debt trajectory. Key-words: Debt sustainability and Brazilian economy

ПОКАЗАТЕЛЬ ВЕРТИКАЛЬНОЙ НЕСБАЛАНСИРОВАННОСТИ КАК ИНСТРУМЕНТ АНАЛИЗА ДОЛГОВОЙ УСТОЙЧИВОСТИ РЕГИОНОВ РОССИИ

The applicability of the indicator of vertical fiscal imbalance and its components in the analysis of debt sustainability of Russian regions is considered. The concept of vertical imbalance of the International Monetary Fund is modified to include different types of intergovernmental transfers in the budgetary system of Russia. The data on regional credit ratings from Analytical Credit Rating Agency "ACRA" are used as a criterion for grouping regions, a regression analysis of the credit rating is carried out. It is found that vertical imbalance can be considered one of the promising tools in the analysis of regional debt sustainability. The inverse relationship between vertical imbalance and debt sustainability with the latter estimated through the value of the credit rating, is found. Deficit and federal intergovernmental transfers in 2020 increased vertical imbalance and reduced debt sustainability of the subjects of the Russian Federation. Vertical imbalance in regions with greater debt sustainability increased mainly due to the growth of deficit, while in less sustainable regions – due to intraregional centralization of federal earmarked intergovernmental transfers.

An empirical investigation of determinants & sustainability of public debt in Pakistan.

An assessment of debt dynamics and its sustainability is very important in formalizing prudent and effective macroeconomic policies especially for the economies with weak macroeconomic fundamentals and alarming debt levels. Keeping in view the recent debt escalation in Pakistan, this study aims to explore the important factors that influence the public debt dynamics in case of Pakistan and to evaluate its sustainability. This study applies the debt dynamic approach for empirical assessment of drivers of changing debt levels and analysis of public debt sustainability. Furthermore, ARDL approach is utilized to study the short- and long-run debt dynamics using historic data from 1975 to 2021. This study is distinct from already existing work on debt assessment in Pakistan as it examines both important dimensions of public debt (determinants & stability) by employing the novel dynamic debt modelling approach and using most recent data. The study finds a positive and significant impact of fiscal deficit, exchange rate depreciation and interest rate on public debt in Pakistan. The debt sustainability analysis also reveals the instability of public debt for the entire study period except for few years. The regression results corroborate with the findings from stability analysis, and the main driving forces for increasing the debt burden of the country are found to be the fiscal indiscipline along with the rising cost on account of ER depreciation and higher interest rates.

ЗАБЕЗПЕЧЕННЯ БОРГОВОЇ СТІЙКОТІ ДЕРЖАВИ В СУЧАСНИХ УМОВАХ

The paper aimed at researching the state's debt sustainability, assessing its condition and developing ways to improve it in current conditions characterized by a significant level of uncertainty and risk. The study emphasizes that the state's debt sustainability largely depends on the level of its debt and budget security. Emphasis was placed on the necessity and importance of ensuring the debt sustainability of the state in the modern conditions of uncertainty and risk caused by the war of the Russian Federation against Ukraine and the global economic recession. Such threats significantly affect the lowering of the country's debt sustainability level and contribute to the formation of serious threats to national security. Moreover, Ukraine had a significant amount of public debt before the start of armed aggression, and after the start of the active phase of the war, this level only increased at a very fast pace which is a significant threat to the financial and national security of Ukraine. Accordingly, the assessment of the state's debt sustainability level will allow for an assessment of the main threats to the country in the future. Therefore, it was proposed to carry out an analysis of the state's debt sustainability by assessing the state of debt and budget security. The expediency of using the selected methodology for calculating debt and budget security indicators is substantiated. This technique involves the calculation of individual indicators and the overall indicator of budget security and the calculation of individual indicators and the overall indicator of debt security. As a result of the use of this methodology, an assessment of the state of the state's budget security and state debt security was made. Corresponding conclusions have been made, which provide for the identification of the main threats to ensure the budgetary and debt security of the state. Based on the results of the analysis, the paper developed proposals to strengthen the state's debt and budget security, which will contribute to ensuring its debt sustainability in current conditions characterized by a significant level of uncertainty and risk.

Analysis of External Debt Sustainability in Mongolia: an Estimated DSGE Approach

In this study, we assess the effects of the structural shocks on the external debt sustainability in Mongolia, based on an estimated small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model with the traded, the non-traded, and the mining sectors. The impulse response results show that the traded sector’s productivity shock, the commodity price shock, the mining output shock, and the foreign interest-rate shock have a decreasing effect on external debt accumulation in Mongolia, whereas the non-traded sector’s productivity shock, the household preference shock, and the government spending shock have an increasing effect on the same. Furthermore, we assess Mongolia’s external debt sustainability under the COVID−19 pandemic shock. Under our assumed pandemic scenario, Mongolia’s external debt will increase by 30% from its steady state over the next 10–28 quarters. Our recommended solution in this study is to develop the traded sector, instead of the mining sector, to maintain sustainability of the external debt and to decrease vulnerability of the economy.

The USA external debt problem: is there a solution?

The author focuses on the analysis of dynamics, trends and specifics of the current composition of the external debt of the USA using statistical data compiled by the international financial institutions. The paper contains an analysis of the US external debt sustainability and highlights the prospects for the external debt problem solution. The author concludes that currently the USA is subject to a high degree of external debt risk and does not have sufficient financial resources to service its external debt. In case non-residents discontinue refinancing current external indebtedness, USA may face a sovereign default.

Econometric Analysis of Benin Public Debt Sustainability

Public indebtedness rates (outstanding debt recorded in the GDP) of Benin are respectively from 41.2% (4th term 2019), 43.9% (1st term 2020) and 48.4% (2nd term 2020). Previously, these rates have increased from 56.2% on December 31, 2018, compared to 54.3% in 2017 (Autonomous Amortization Fund - CAA, 2020). The progress of these indebtedness rates deserves an analysis of Benin public debt sustainability. This study thus aims at carrying out the econometric analysis of Benin public debt sustainability. The outcomes of data processing in the programming software R reveal that estimated β ( = 0,7318), is comprised between 0 and 1; we can deduce, according to QUINTOS (1995) that the revenues and expenditures partially adjust and that Benin public has a low sustainability.

Sovereign debt crisis management by the European Central Bank

"Following the bursting of the real estate crisis of 2007 and the financial crisis of 2008, the European Union faced another difficult situation, namely the sovereign debt crisis, when the euro was put to the test. The sovereign debt crisis is a widely debated and analyzed topic both in Romania and in Europe. Given the effects it generates, amid rising government debt and the instability of the banking system, it is important to know its causes, in order to subsequently identify the most effective measures to improve the economic situation in each affected state. This paper seeks to discuss the concept of sovereign debt crisis by conducting an analysis of government debt sustainability and the budget deficit in the European Union, as well as a forecast of government debt sustainability in Romania, reflecting the measures implemented by the Central Bank EU. According to the Maastricht criteria, the nominal convergence indicators, including the budget deficit and government debt, must be below the alert level, so that they are in line with European Union requirements. The level of the consolidated budget deficit must be less than 3%, and in terms of government debt, it must be below 60% of GDP. The rationale for choosing this theme is that the existence of such a crisis at European level can significantly affect the economic context of each Member State of the European Union (EU), in terms of the interconnection of the global financial system. This interconnection refers to the idea that, when a state becomes involved in the claim of sovereign debt, it indisputably endangers part of the external private debt. This concept is also called in the literature and contagion effect. The relevance of this theme lies in the analysis of the evolution of the main indicators that led to the onset of the sovereign debt crisis, as well as in the identification of its causes, in order to prevent enlargement."

Thirlwall's law, external debt sustainability, and the balance-of-payments-constrained level and growth rates of output

Thirlwall's law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of balance-of-payments-constrained long-run growth models with balanced trade. Some authors have extended the analysis to incorporate long-run net capital flows. We provide a critical evaluation of these efforts and propose an alternative approach to deal with long-run external debt sustainability, based on two key features. First, we treat the external debt-to-exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long-run capital flows can positively affect the long-run level of output, but not the rate of growth compatible with the balance-of-payments constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall's law still holds.

Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

The study examines the sustainability of public and external debt burden of Pakistan and India for the period 1971–2017. The debt dynamics equation for public debt uses two components for the analysis of public debt sustainability, namely, interest rate–growth rate differential and differential of primary budget balance-to-GDP and change of reserve money-to-GDP ratio. The equation for external debt dynamics also uses two components for the assessment of external debt sustainability, namely, current account balance-to-exports ratio and differential of exports growth and interest rate. The significance of the approach used in the current study lies in the fact that in case of evaluation of countries’ debt sustainability, it is quite necessary to monitor debt trends along with emerging domestic and external vulnerabilities and systemic risks that threaten debt sustainability. This phenomenon has been captured through debt dynamics approach, which is used in the current study. The results are based on the estimation of two equations, namely, debt dynamics equation for overall public debt sustainability and debt dynamics equation for external debt sustainability. The results of the study indicate that primary budget deficit and current account deficit have played a significant role in the accumulation of public debt and external debt, respectively in Pakistan and India. The study concludes that public debt and external debt of Pakistan and India are sustainable but in a weak form.

Debt Sustainability in Low-Income Countries: Policies, Institutions, or Shocks?

This paper estimates the determinants of external debt distress in low-income countries (LICs), disentangling the roles of institutions, shocks, and policies. The most prominent factors in raising the risk of debt distress are the weak protection of private property rights, adverse shocks to real non-oil commodity prices, and a high debt burden. Results also suggest that weak economic institutions tend to raise the probability of debt distress through persistently weak economic policies and high vulnerability to external shocks. The model enables a more granular analysis of debt sustainability in LICs and has a higher predictive power compared to the earlier scant literature.

Debt Sustainability in Low-Income Countries: Policies, Institutions, or Shocks?

This paper estimates the determinants of external debt distress in low-income countries (LICs), disentangling the roles of institutions, shocks, and policies. The most prominent factors in raising the risk of debt distress are the weak protection of private property rights, adverse shocks to real non-oil commodity prices, and a high debt burden. Results also suggest that weak economic institutions tend to raise the probability of debt distress through persistently weak economic policies and high vulnerability to external shocks. The model enables a more granular analysis of debt sustainability in LICs and has a higher predictive power compared to the earlier scant literature.

Keynesian and Neoclassical Fiscal Sustainability Indicators, with Applications to EMU Member Countries

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded on the dynamic stability approach originated by Domar (1944); secondly, it looks at sustainability in EMU member countries, with particular attention given to the relations between sustainability and the design of fiscal rules. The results show that the 3% rule imposed by the Maastricht treaty can be justified as a sustainability requirement for an average EMU member country. At the same time, the dispersion around this average is quite substantial: this questions the viability of uniform deficit caps across EMU member countries.

The Analysis of External Debt Sustainability by Periodic Unit Root Test with Structural Break: The Case of Turkey

<p>The aim of this study is to investigate external debt sustainability using the periodic unit root<br />rest with structural break which is introduced by Boswijk and Franses (1995) and then<br />developed by Evans (2006). In order to test the hypothesis, we use quarterly Turkish data<br />measuring the ratio of external debt stock to GDP that covers the period from the first quarter<br />of 1990 to the third quarter of 2012. The empirical results support that the ratio of external<br />debt stock to GDP has the periodic behavior under structural change and follows a<br />nonstationary periodic process with structural break. According to the empirical findings, it is<br />argued that the external debt is unsustainable in Turkey.</p>

Greek Debt Sustainability and Official Crisis Lending

The International Monetary Fund and the European Stability Mechanism softened their crisis lending policies repeatedly to deal with the Greek debt crisis, but the analysis of debt sustainability still acts as the gatekeeper for access to official financing. We explore the underlying mechanics of debt sustainability analysis and show that the standard model is inappropriate for Greece since it ignores the highly concessional terms of Greek debt. Greek debt has been restructured repeatedly, and now two-thirds of the stock contains grant elements of about 54 percent. The present value of outstanding Greek debt is currently about 100 percent of GDP and will rise to about 120 percent under the new program. Greek debt sustainability therefore is less a problem of the debt stock. By simulating different paths of the gross financing needs, we show that there may be liquidity problems over the medium to long terms (in particular, in 2035 and beyond). However, our estimation of the financing need is subject to high uncertainty and mainly depends on whether Greece will be able to regain access to markets at reasonable terms.

An Analysis of Debt Sustainability in the Economy of Pakistan

The study provides a detailed analysis of debt sustainability in the economy of Pakistan. Literature on the issue of public debt considers it sustainable if the growth of debt is not greater than growth of GDP. Debt sustainability in the economy of Pakistan is tested by estimating fiscal reaction function where a positive relationship is found between surplus-to-GDP ratio and lag debt-to-GDP ratio. The small coefficient of debt-to-GDP indicates an existence of sustainability in its weak form. Afterwards, extended fiscal reaction function is estimated and results show that the value of coefficient of lag surplus-to-GDP ratio is positive and marginally significant which confirms the role of past surpluses in future. Debt dynamics is also analyzed. To analyze the effects of expenditure and revenue adjustment to debt, revenue and expenditure reaction functions are estimated and results are in support to inter temporal budget constraint as government has its role in fiscal adjustments by working on both the aspects i.e. revenue and expenditure. The dynamic analysis of affects of government spending and revenue shocks on debt-to-GDP ratio and other macro-economic variables through Vector Autoregressive (VAR) model is also the part of this study for period 1971-2008 and results indicate that consumption and output reacts negatively to the innovations in government spending refers to the similarity with Ricardian behavior. Lastly, the long run relationship between surplus-to-GDP ratio and debt-to-GDP ratio is estimated through Johansen co integration to confirm sustainability and results suggest the existence of long run association among the two series.

How to evaluate risk for Italian real estate funds

PurposeThe purpose of this paper is to define an approach useful to evaluate real estate funds on the specific characteristics of the Italian market and on the basis of international best practices.Design/methodology/approachThe first step is to identify specific factors and portfolio construction choices that could impact directly on the variability of inflows and outflows related to real estate fund. The analysis is realised constructing standard measures of financial and downside risk and identifying a panel model that allows to explain risk measure dynamics on the basis of some investments and portfolio characteristics. Results obtained are tested with an out of sample procedure in order to evaluate the type of misclassification risk related to each model. The second step is to evaluate the impact of debt policy on the risk assumed by a real estate funds. After an analysis of debt sustainability for each real estate unit on the basis of deadlines and amount of flows related to each investment, the study proposed looks directly at the debt policy of listed real estate funds: the analysis is aimed to evaluate the relationship between leverage choice and inflows/outflows variability and the coherence between declared results and expected results for high‐leveraged funds respect to the others.FindingsThe results stemming from the use of a real estate database supplied by Beni Stabili Gestioni Società di Gestione del Risparmio showed that the portfolio's construction choice impacts strongly on the variability of results of a real estate fund. The strict linkage between characteristics of debt and type of property makes difficult to evaluate the additional risk related to debt choice but on the basis of Italian market data are possible to point out the higher difficulties for high‐leveraged funds to achieve the result communicated to the market (the so‐called target IRR).Originality/valueThe value added of the paper is to study the relevance of specific risk factors respect to portfolio's ones in the evaluation of risk exposure for a real estate portfolio and the impact of the leverage choices on the variability of inflows and outflows related to the real estate investments.