Build-up Of Debt Research Articles

Managing High Debt Levels: Strategies, Causes, and Impacts on Economic Stability

In recent years, the exponential growth of debt in many economic sectors, including people, enterprises, and governments, has emerged as a major worldwide issue, jeopardising economic stability. The high debt levels may be attributed to many factors, including stagnant earnings, increasing living expenditures, aggressive business development goals, and fiscal deficits. The ramifications of this buildup of debt are extensive, including serious financial hardship, reduced competitiveness, and decelerated economic development. This study analyses the causes and consequences of high levels of debt, highlighting the need for implementing efficient debt management techniques. Central strategies include improving financial literacy, advocating for responsible borrowing, adopting cautious financial management practices in firms, and attaining fiscal consolidation and structural changes at the governmental level. Furthermore, the study emphasizes the need for cutting-edge debt management strategies, such as the use of technology, to guarantee sustained economic strength and stability in the long run. This research emphasizes the crucial need to tackle excessive debt to avoid financial crises and maintain economic development in the presence of global economic difficulties. Keywords: Debt Accumulation, Economic Stability, High Debt Levels, Financial Hardship, Competitiveness.

Противоречия экономики России и механизм их разрешения в условиях импортозависимости

The article examines the modern economic model of Russia and the gaps in the existing import substitution policy. In the course of the work, contradictions of economic institutions were identified, the structural causes of the crisis of the debt build-up model, the question of the introduction of a sovereign development plan was raised, the definition of the plan was given, conditions for sustainable economic growth were described, a model of the economy of innovative development was proposed, taking into account the mistakes of the “debt build-up economy” with the aim of developing Russia as a center of global importance. Based on the analysis, the proposals for the transition to a new economic policy and the use of tools for its implementation on the ba-sis of a system of short- and long-term state planning of socio-economic development are substantiated. A methodology for the formation of a unified strategy for socio-economic development is proposed in order to mitigate emerging strategic risks in the context of external aggression.

Budgetary Policy and Structural Transformation of the Russian Economy

Recently the Russian economy in addition to global trends has been affected by structural shocks. Fiscal instruments make it possible to respond both to temporary fluctuations in business activity and to support economy restructuring. The existing Russian fiscal reserves made it possible to cope with the first consequences of the sanctions. Estimated effectiveness of the budget impulse in 2022 was twice as high as in 2020. However, the risks of fiscal policy are increasing due to an unforeseen increase in spending, the need to increase the tax burden on the economy and the build-up of public debt. The paper proposes measures to redistribute the tax burden between the export-oriented sector and domestic producers, approaches to the use of digital financial assets in taxation, measures to develop the debt market and other areas of supporting the structural transformation of the Russian economy.

Debt and financial fragility: Italian non-financial companies after the pandemic

This paper analyses the evolution of debt of Italian firms from 2010 to 2020 with special focus on the first year of the Covid-19 pandemic. We use quantile regressions to assess the vulnerabilities of the most indebted firms. On average Italian non-financial companies (NFCs) reduced their indebtedness over the sample period, a trend which continued during the first year of the pandemic. By exploiting the high heterogeneity in the data, however, we find that the turmoil affected the most indebted firms for which the trend of declining indebtedness was reversed. Moreover, sectors that were suspended during the first lockdown already had the highest levels of the debt-to-assets ratios, and experienced the steepest increase in debt in 2020. Finally, our results show that highly indebted firms exhibit a qualitatively different behaviour compared to the rest of the sample. Excessive debt build-up severely increases the likelihood of non-financial companies exiting the market.

Does the inverted U-shape between corporate indebtedness and investment hold up for emerging markets? Evidence from Türkiye

While corporate indebtedness has increased substantially in emerging countries over the last decade, the literature on the negative consequences of this large build-up of debt on real consequences is very limited. In addition, they provide mixed results and suffer from the lack of representativeness of their samples, which can be attributed to data availability. Unlike the previous studies, this study investigates the link between corporate indebtedness and investment by utilizing a novel firm-level data covering the universe of all incorporated manufacturing firms in Türkiye over the last decade. The results of the panel regression model with multi-dimensional fixed effects provide significant evidence of an inverted-U relationship between indebtedness and investment, indicating that leverage increases investment up to a certain level, and after that, further increase in leverage has an adverse impact on investment. This non-monotonic relationship is evident for all firm size groups. Conspicuously, the indebtedness level that impedes investment is significantly lower for Small- and Medium-Sized Enterprises (SMEs) than large firms, which supports the arguments that small firms are more likely to be affected by debt overhang. Results also reveal that firms holding more cash can sustain higher levels of debt without hurting investment activity. This is also the case for high capital-intensive firms and exporters. Findings of this paper highlight the importance of policies to make equity financing more attractive, incentivize the uptake and provision of equity capital from private investors, and deepen the capital markets.

Austerity urbanism, local government debt-drive, and post COVID predicaments in Britain

Abstract Conditions of local governance in the aftermath of the global financial crisis are often discussed as reflections of ‘austerity urbanism’. What forms of mutations have taken place in austerity urbanism after the initial years of spending cuts at the local level? This article investigates this question by focusing on the uneven geographies of post-austerity debt-drive in Britain. It is shown that austerity urbanism in Britain was somewhat peculiarly combined with debt-driven ‘entrepreneurialism’ several years after the introduction of extensive budgetary cuts. The local debt-drive was instigated by austerity-urbanism as a way of resolving the challenge of financing local services and development. The relatively low level of initial debt stock among local governments, very attractive borrowing terms and various regulatory changes facilitated the expansion of borrowing. Using debt stock data for over 300 local governments, it is demonstrated how debt build-up evolved to create financial difficulties for around 40 per cent of local governments. The Covid-19 pandemic, with its severe impacts on local revenues, exposed the debt-driven local development projects, leading to rescue operations and efforts to curb borrowing through new rules and regulations. For deeper international insights into the dynamics of debt-financing and urban development in times of crises, further research is needed to complement existing research in Britain and the USA, where relatively greater evidence exists.

FINNISH ECONOMY AMID THE CRISIS PHENOMENA 2021–2023

This article is devoted to the analysis of the development of the economic situation in Finland in the context of the crisis phenomena of recent years. Their main source was the increase in world energy prices. Then the crisis worsened due to the consequences of Russia launching a special military operation on the territory of Ukraine. For Finland, this led to the emergence of additional crisis phenomena. In particular, for political reasons, economic cooperation with our country has been reduced to almost zero. Particularly sensitive was the rejection of Russian oil and gas in favor of Norwegian and American, the price of which was much higher. This factor, combined with the build-up of public debt during the tenure of Prime Minister Sanna Marin, has led to a chain reaction in the Finnish economy, which risks turning into a full-fledged crisis for it. The new Premier Minister Petteri Orpo does not have much time and resources left to prevent this scenario.

THE MEDIATING EFFECT OF EASE OF DOING BUSINESS ON THE RELATIONSHIP BETWEEN PUBLIC DEBT AND INFRASTRUCTURE IN ARAB COUNTRIES

This study examines how the ease of doing business in Arab countries mediates the relationship between public debt and infrastructure. According to previous research, one way to encourage the start-up of new infrastructure projects that boost economic growth and reduce debt build-up is to improve the business environment. The results showed that the relationship between public debt and infrastructure is fully mediated by the ease of doing business, using panel data for 19 Arab countries from 2000 to 2020. Based on the general least squares method, infrastructure was statistically negatively affected by public debt. By reducing the harmful effects of public debt on infrastructure, the study confirms that the ease of doing business leads to a more positive relationship between the two. This is due to the fact that a business-friendly environment can attract investment and boost the economy, which can help counteract the harmful effects of public debt on infrastructure. The paper provides recommendations for policymakers in Arab countries to create a favorable business environment that increases investment in infrastructure and reduces the effects of public debt. They need to promote good governance, which would curb corruption, strengthen institutions, and implement reforms to improve the ease of doing business, as some Arab countries still lag behind in many aspects of doing business, hindering business prosperity, proper infrastructural investment, and debt sustainability.

Debts and depth of recessions

This paper empirically investigates the relationship between the speed of buildup of private debt (household and corporate) and the depth of recessions. To do this, we differentiate between financial recessions and normal recessions on the basis of how quickly their private debt builds up. In addition to output recessions, we look at consumption and investment recessions. We find that financial recessions are deeper than normal recessions in advanced economies—and the differences become even more pronounced when emerging market economies are added to the sample. Our evidence suggests that a buildup in corporate debt is especially damaging for emerging market during financial recessions. A higher ratio of debt to gross domestic product—in other words, less fiscal space—exacerbates recessions only beyond a certain threshold level, suggesting a nonlinear effect. We find that the buildup of corporate debt—and not just household debt—can worsen recessions, especially in emerging market economies.

Federal transfers: Leeway to higher regional debt?

The research focuses on the impact of substituting own revenues in Russian regions by federal intergovernmental transfers on the amount of public debt using the concept of vertical fiscal imbalance (VFI). Vertical imbalance emerges as a result of spending assignment exceeding revenue streams at the lower levels of the budgetary system. It leads to a lack of own revenues and creates risks of accumulating deficits and debt buildup. Vertical imbalance is analyzed as a whole and by its components — the deficit of a subject of the Russian Federation and the types of intergovernmental transfers. Shared revenue sources with sharing rates differentiating among regions and allotted at the discretion of regional authorities to local administrations are considered to be regional intergovernmental transfers as well. Quantitative analysis was carried out by panel regression with fixed effects of regions and observation periods based on the data for 2011—2020. It is found that vertical imbalance does not have a significant impact on the amount of debt, as federal intergovernmental transfers do not restrain growth of tax base or efficiency of spending, as laid out by the theory. We refer the low risk of negative consequences to the low powers of regions in generating revenues and big primary spending obligations.

Papua New Guinea

Papua New Guinea (PNG) is a fragile state, vulnerable to natural disasters and terms of trade shocks. Low commodity prices in 2014-20, a severe drought in 2015-16, and a major earthquake in 2018 softened growth, led to shortages of FX, and contributed to a pre-pandemic build-up of public debt. The pandemic further increased public debt, which is now at high risk of distress, while development needs remain considerable.

Debt Dynamics in Emerging and Developing Economies: Is R − G a Red Herring?

Abstract In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability. Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role. But is this enough to prevent countries from falling into debt distress? Drawing from a sample of 150 emerging and developing economies going back to the 1970s, we find that interest-growth differentials have remained relatively low dampening debt increases in the run up to a crisis. But in the face of persistent primary deficits, debt service tends to rise abruptly—particularly in emerging markets—and a fiscal crisis ensues. There is also evidence that a large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities. These findings underscore that, though not necessarily a red-herring, low interest-growth differentials cannot fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts.

Пандемия COVID-19 как фактор наращивания государственного долга. Опыт Казахстана в контексте мировой ситуации

One of the main effects of the COVID-19 pandemic is a significant aggravation of the debt burden in most countries of the world, due to increased costs to support the economies. In Kazakhstan, similar problems also caused a significant increase in the volume of public debt and expenses for its servicing, while due to the specifics of the country’s economic model, the channels of influence of the pandemic on the debt sector were more numerous because of the impact of external shocks. The growth of government debt and the debt servicing cost during the pandemic years was affected by such factors as the growth of budget’s expenditures to support the economy; a drop in revenues due to lower oil prices; the devaluation of the tenge and growth of the cost of servicing external debt; increase of interest rates in the domestic debt market. A comparison of the parameters of public debt increase and loss of economic growth based on the ratio of these two indicators is proposed as a generalized indicator of the effectiveness of debt buildup during the pandemic. This approach showed that the debt increase in Kazakhstan was quite effective. Nevertheless, the effects of the fight against the pandemic had a serious negative impact on Kazakhstan’s public finance system, and in the debt sphere the main problem now is the escalation of debt servicing costs, which will be a significant burden on the budget process, at least for the next few years.

Transparent Budget in the System of Public Administration

One of the main effects of the COVID-19 pandemic is a significant aggravation of the debt burden in most countries of the world, due to increased costs to support the economies. In Kazakhstan, similar problems also caused a significant increase in the volume of public debt and expenses for its servicing, while due to the specifics of the country’s economic model, the channels of influence of the pandemic on the debt sector were more numerous because of the impact of external shocks. The growth of government debt and the debt servicing cost during the pandemic years was affected by such factors as the growth of budget’s expenditures to support the economy; a drop in revenues due to lower oil prices; the devaluation of the tenge and growth of the cost of servicing external debt; increase of interest rates in the domestic debt market. A comparison of the parameters of public debt increase and loss of economic growth based on the ratio of these two indicators is proposed as a generalized indicator of the effectiveness of debt buildup during the pandemic. This approach showed that the debt increase in Kazakhstan was quite effective. Nevertheless, the effects of the fight against the pandemic had a serious negative impact on Kazakhstan’s public finance system, and in the debt sphere the main problem now is the escalation of debt servicing costs, which will be a significant burden on the budget process, at least for the next few years.

KESADARAN HUKUM MASYARAKAT DALAM MEMBAYAR PAJAK BUMI DAN BANGUNAN DI DESA BONEDAA KECAMATAN SUWAWA SELATAN KABUPATEN BONE BOLANGO

The low and not yet optimal legal awareness of the community in paying land and building taxes is one of the problems faced in Indonesia, as well as in Bonedaa Village, South Suwawa District, Bone Bolang Regency. Not optimal and low public knowledge about legal awareness in paying taxes, can result in development not going well and smoothly, the government is also not sufficient to meet regional needs, regional foreign exchange is reduced so that it can lead to a buildup of debt. This study aims to determine how the public's legal awareness in paying land and building taxes. The research method uses the methodqualitative, namely in the form of data collection through library research and field data. Based on the results of the study, it shows that the lack of legal awareness of the people of Bonedaa Village, South Suwawa District, Bone Bolango Regency in paying land and building taxes is caused by several factors, namely the economy, lack of socialization and lack of public awareness in paying taxes on time. To increase public legal awareness in paying taxes, the government must provide an understanding of the importance of paying taxes, either through socialization, through print or electronic media, so that people can understand the tax.

The Buildup of Global Debt and the Emergence of a New Global Financial Crisis

Many economic researchers and economic policy-makers are discussing an upcoming global financial crisis that will result in a long-term economic recession due to the accumulation of global debt that has reached record levels. However, the truth is that the crisis is still far from our economic reality because the debt crisis has been addressed in a number of countries since the crisis of the 1980s by the rescheduling and write-offs of debts, international cooperation, and other measures. Also, the United States is still able to manage its debts as long as the dollar is the global reserve currency, and it cannot easily be abandoned as such. In addition, the International Monetary Fund is prepared to manage debts and financial crises while at the same time monitoring economic indicators. It provides the necessary international liquidity to achieve global monetary and economic stability.

Garbage Collect Your Technical Debt

There is a kind of design distortion that happens when a team chooses to build iteratively instead of looking at all of the requirements at once. Ward Cunningham coined the term technical debt to describe those design distortions.1 By understanding the causes of tech debt and connecting them back to a team’s actions (or inactions), it’s possible to minimize the buildup of tech debt and keep a system healthy indefinitely. The way to minimize tech debt is to view a software development process as an algorithm, consider several algorithms, and choose the right one for the circumstances.

Debt Buildup and Currency Vulnerability: Evidence from Global Markets

ABSTRACT Debts have risen rapidly since the global financial crisis. While the literature acknowledges that rapid debt buildups can harm the economy and exacerbate recessions, their impact on currency vulnerability is still empirically under-investigated. This study examines how public and private debt buildups are related to currency depreciation pressure by analyzing the evidence from 59 advanced and emerging markets. Our results suggest that both private and public debt exacerbates currency vulnerability, but the effect of private debt is more robust and consistently significant. We also find that excessive private debt buildup is more harmful in emerging markets, and greater dependence on external financing exacerbates the impact of debt buildup on currency stress. Overall, the evidence highlights the importance of a comprehensive debt surveillance framework that monitors both public and private debt buildup, especially in emerging markets.

Household Debt, Corporate Debt, and the Real Economy: Some Empirical Evidence

ABSTRACT The rapid accumulation of private debt is widely viewed as a major risk to financial and economic stability. This article systematically and comprehensively assesses the effect of private debt buildup on economic growth. In the spirit of the existing study that separately examines the effects of two types of private debt – household debt and corporate debt – on growth in advanced economies, we specifically provide new evidence on the growth-private debt nexus in both advanced and emerging market economies (EMEs). Moreover, we construct financial peaks in terms of the speed of debt accumulation rather than crisis dates and find that in both advanced and EMEs, corporate debt buildups cause more financial peaks than household debt buildups. Furthermore, corporate debt-induced financial recessions inflict a bigger damage on output than household debt-induced financial recessions in EMEs. Overall, our evidence suggests that policymakers would do well to closely monitor not only household debt but also corporate debt.

Search and credit frictions in the housing market

This paper develops a model of the housing market with search and credit frictions. The interaction between the two sources of friction gives rise to a novel channel through which the financial sector affects prices and liquidity in the housing market and leads to multiple equilibria. In a numerical exercise, we gauge the relative contribution of credit market shocks to the observed patterns in housing prices, time-to-sell, and mortgage debt-to-price ratio in the U.S. data prior to the 2007 housing market crash. Our results suggest that shocks associated with the credit frictions channel had a relatively larger impact on the observed build-up in mortgage debt and lack of change in time-to-sell than on the increase in prices.