External Public Debt Research Articles

Debt strategies of European countries and vectors of implementation of best experience in the practice of external public debt management of Ukraine

The policy of external and domestic public debt management in different countries has its own specifics, and its results are not always unambiguous. Thus, the existing recommendations of the International Monetary Fund and the Maastricht criteria prove that the maximum value of public debt to GDP should be no more than 60 %. Exceeding this limit can lead to a deterioration in financial stability, debt sustainability, and ultimately to a technical default of the state. However, the practice of public debt management in many developed countries shows quite opposite trends, as a significant excess of the Maastricht criterion not only does not lead to default, but on the contrary allows countries to accumulate the necessary financial resources to ensure stable economic growth.
 Therefore, the study of European debt strategies and their effectiveness is a very important issue, especially given the consequences of the COVID-19 pandemic for developing countries. Given the growing external debt dependence of Ukraine as a result of both the war with the Russian Federation and the COVID-19 pandemic, the search for a better experience of European debt policy and consideration of ways to adapt it to domestic realities are discussed in our article.
 Based on the analysis of the debt policy of European countries, the expediency of using debt rules, aimed at regulating both the country's debt security and the effectiveness of the use of public borrowing to stimulate economic growth has been proved.
 Cluster analysis of debt strategies of some European countries has shown that the high level of dependence on external public debt has a negative impact on economic security in general, because in the event of deteriorating macroeconomic situation, the likelihood of foreign investors selling government securities increases, and in the case of external loans from international financial and credit organizations – the risks of negative impact of burdensome non-financial obligations on the national economy grow.

The Dynamics of Foreign Public Debt and Foreign Exchange Reserve of Ethiopia: Autoregressive Distributed Lag Model Approach

External public debt and foreign exchange reserve (FER) are performing a crucial role in the growth and development of countries. To examine the short-run and long-run dynamics among external public debt (EPD) and FER in Ethiopia, the study used 39 years data (1981 to 2019) from National bank of Ethiopia (NBE) and World Bank data sets. The Autoregressive Distributed Lag (ARDL) model with error correction model (ECM) was employed after checking the possible assumptions of economic series. The results of ADF test statistics confirms our economic series are stationary with a mixture of level form and first difference form. Bounds co-integration test suggests the existence of co-integration among the variables. According to the descriptive method of data analysis, on average, in Ethiopia the trend for service sector indicated that an ever improvement of the sector throughout the periods and supplementing the notion of change from agriculture base to service sector. On the other hand, according to ARDL model in the short -run on average trade tariff rate, share of manufacturing sector from the GDP, and lagged value of EPD itself predicts the EPD significantly at least at less than 10% level of significance . Moreover, the ECM revealed that in the long-run, financial development indicator, debt service payment, and average trade tariff rate were predicting the stock of FER for Ethiopian economy. Finally, the concerned body, the government of Ethiopia, should limit or reduce the amount of external debt (ED) inflows, and recheck the budget sources for financing different projects especially manufacturing industries rather than highly basing on external sources in the form of EPD, among others.

EARLY WARNING SYSTEM OF EXTERNAL SUSTAINABILITY OF AN ECONOMY: CASE OF UKRAINE

Abstract. The paper deals with the early warning system that allows monitoring the external sustainability of an economy due to external economic shocks. For this purpose, the analysis of the external sustainability indicators system of an economy (example of Ukraine) was implemented. It consisted of statistical analysis of the system of indicators of external sustainability of an economy, probabilistic assessment of their dynamics due to external economic shocks. The analysis of external sustainability indicators includes verifying their volatility, stability and variability relative to GDP. It means calculation of standard deviation for testing the volatility, autocorrelation to check the stability of the indicator and correlation between its value and GDP growth rate to measure the variability relative to the economy’s performance. The calculations of threshold percentiles for indicators of external sustainability of Ukraine’s economy, noise-signal ratios and probabilities of the occurrence of unsustainable external perturbationsare based on signal approach. The analysis of indicators of external sustainability of Ukraine’s economy shows that most indicators are volatile relative to their average values. It is shown that most indicators of the external sustainability of Ukraine’s economy are acyclic as they are weakly correlated with the growth rate of GDP, although their turning points coincide in many cases. Procyclical indicators are the ratio of reserve assets to «broad money», the ratio of net foreign assets to GDP, the average interest rate on external government liabilities, countercyclical indicators are the ratio of reserve assets to short-term external debt, the share of external public debt denominated in foreign currency to the total amount of external government obligations (except for SDR). Keywords: external sustainability, early warning system of external sustainability, external economic shocks, commodity prices, debt sustainability, social and market efficiency. JEL Classification F30, F40, F62 Formulas: 0; fig.: 1;tabl.: 0; bibl.: 24.

EFFECT OF EXTERNAL DEBT LIABILITY ON ECONOMIC GROWTH IN KENYA

Purpose: The purpose of the study was to evaluate the effect of external debt liability on economic growth in Kenya.
 Materials and Methods: The descriptive research design was adopted. The target population was three institutions: The National Treasury, Kenya National Bureau of Statistics, and the World Bank. The study used time series data. The designated sample for this study covered a period of 43 years (1977–2019). Secondary data was used in this study. The data collected was on GDP of Kenya between 1977 and 2019, External public debt in terms of US dollars from 1977 to 2019, External private debt from 1977 and 2019 and external debt service payments from 1977 to 2019, all in US dollars. A data collection sheet was used to collect the data on the four variables. World Bank and World Development Indicator economic Meta data and published data by Central Bank of Kenya and the Kenya National Bureau of Statistics were the source of data for this study. The study used Eviews version 10 for analyzing and presenting study findings. The study employed multivariate time series and panel data regression analysis. The model employed GDP as a measure of economic growth and external public debt, external private debt, and external debt service payment as its main independent variables.
 Results: The study found out that only the external private debt and the debt service payment showed bilateral causal relationship. External public debt and external private debt had a positive and significant effect on the GDP, indicating that external debt promotes economic growth in Kenya. The external debt service payment showed a negative and a significant effect on the GDP as well. The model explained 97% variability of the GDP as explained by the three independent variables combined. The 3% is attributed to other factors, not included in this study.
 Unique contribution to theory, practice and policy: The study recommends a more robust multivariate model to be employed to include more macro-economic variables to explain economic growth. A decade-to-decade comparison can also be done to compare the effects of the external debt on Kenyan economic growth in different time intervals. Fiscal and monetary policies should be reviewed to encourage more domestic and foreign investments and discourage external borrowing to fund budget deficits or projects with low or no returns.

Peculiarities of public debt management policy in the United States of America: experience for Ukraine

The object of research is the policy of public debt management of the United States of America and Ukraine.
 The problem solved is the low level of efficiency of the policy of public external and internal debt management of Ukraine in the context of financing economic growth.
 The main scientific results: based on the analysis of the policy of public debt management of the United States of America, it has been proved, that the public debt and the US budget deficit should be perceived not as a problem or threat to macroeconomic stability, but as a tool to stimulate economic growth. It is substantiated, that in order to optimize the policy of internal and external public debt management of Ukraine it is expedient to introduce a debt rule, which is based on the program-targeted method of attracting public debt and provides for the use of public borrowing exclusively to finance economic development programs. In this case, Ukraine, following the example of the United States, will be able to achieve sustainable economic growth, because changing the priorities from debt financing of current state budget expenditures to financing capital expenditures will allow the Ukrainian government to develop economic infrastructure, create conditions for high value-added goods and to develop small and medium business, which will ultimately ensure macroeconomic stability and progressive economic development of the state.
 The scope of practical use of research results. The results of the study can be used by the Cabinet of Ministers of Ukraine, and in particular by the Ministry of Finance during the formation of the Medium-Term public debt management strategy of Ukraine.
 Innovative technological product: The debt rule is based on the program-target method of attraction and use of the state internal and external debt that allows to use effectively the state borrowings for financing of economic growth.
 Scope of application of an innovative technological product: Policy of management of the state internal and external debt of Ukraine

External Public Debt and Poverty Reduction in Cameroon

The objective of this research is to determine the contribution of external public debt on poverty reduction in Cameroon, from 1990 to 2015. The methodological set was inspired from works publish by the IMF in 2003, on the impact of the external public debt on poverty in countries with low income. Considering indicators used by the IMF, in a similar evaluation which are; Life expectancy at birth, Infant mortality rate, and Primary gross enrolment rate, to measure poverty. For our evaluation, the Auto Regressive Distributed Lag (ARDL) model and the Ordinary Least Square (OLS) method implemented under Eviews (analytical software) are used to come out with the results. These results bring out the fact that, the external public debt, has a direct and significant effect on poverty through the per capita income on indicators mention above. It equally affects poverty indirectly through economic growth and development. It is thus suggested an improved debt management and the optimization of the external public debt, with poverty reduction as the target.

Does high external debt predict lower economic growth? Role of sovereign spreads and institutional quality

There has been a lengthy debate regarding the relationship between external borrowing and macroeconomic fragility. This paper investigates the predictive power of external debt as an indicator for economic growth to examine the argument that there is a dynamic relationship between external debt and growth. We conduct a panel regression using data from low- and middle-income countries (LMCs) between 1970 and 2018. The results indicate that an increase in total, long-term, or external public debt consistently predicts slowdowns in short- and medium-run growth. Limited evidence on non-linear external debt-growth relationship highlights the fact that external borrowing, especially by the public sector, significantly contributes to macroeconomic fragility. Proxy vector autoregressive (PVAR) estimation also confirms the dynamic causal effect of external sovereign debt expansion on economic slowdowns. Further evidence suggests that even the countries have high borrowing costs, better institutional quality can help mitigate the negative impact of external borrowing on growth.

External Debt Problem in the European Union

The paper's relevance is substantiated by the fact that today a rapid growth of external debt of the most developed countries of the world (including European Union (EU) countries) is one of the most acute problems of the modern world economy and global finance. The paper aims to assess the degree of the external debt burden of various EU countries and evaluate the prospects of solving external debt problems in the EU. The article focuses on dynamics, composition, and specifics shaping the EU countries' external debt based on comparative, economic, statistical, and graphical analysis. Special attention we paid to the analysis of specifics of the EU countries' sovereign external debt composition connected with the acute problem of the rapid growth of public debt in general. The paper examines the ratio of public external and internal debt in various EU countries. It determines the EU particular countries where public external debt is shaping based on either cross-border or domestic model. The research results reveal a high degree of dependence of the EU economy on international debt finance. Gross external debt and sovereign external debt of the EU countries are still growing, and its distribution among various member states is very uneven. The structural imbalance of the EU countries' net external debt has also been revealed: the number of net borrowers is double that of net lenders. According to the basic external debt sustainability indicators, some EU countries are in a pretty tricky situation and entirely depend on the possibility of external debt refinancing.

Problems of the Growth of the External Public Debt of the Kyrgyz Republic

The problems of the growth of public debt affect an increasing number of states in the modern world. Most countries record a significant shortage of their resources when making domestic investments and cover the state budget deficit and carry out socio-economic transformations. This lack of funds led to the formation of an economic debt system. At the same time, with the liberalization and globalization of financial markets, there will be an increase in the dependence of national economies on external replenishment. When carrying out economic transformations, most of the modern world countries resort to using external and internal sources of financing.The Kyrgyz Republic is no exception to this rule and today is largely dependent on external funding from foreign donors. At the same time, the lack of a consistent policy in attracting and using external and internal financial resources has led to the formation of significant external debt, which does not allow for economic transformations to ensure the country’s economic security. As a result of this study, recommendations were formed for the Ministry of Finance of the Kyrgyz Republic, which proposes a balanced policy of attracting expensive foreign loans to reduce the debt burden. In this study, the principles of dialectical logic, the unity of the logical and the historical, and generally scientific methods of cognition were used. Analysis, synthesis, consistency, special comparisons, groupings, classifications, generalization can be distinguished.

The drivers of Morocco's public external debt: empirical investigation (1998-2019)

The objective of this study is to empirically analyze the determinants of external public debt in Morocco. The issue of external debt is linked to its place in the economic activity of any society. Thus, from an economic point of view, external debt makes it possible to break the link that should exist between savings and consumption within a country. However, despite this clear advantage, the problem is that debt can become dangerous when it exceeds certain limits. If it does not lead to a dislocation of a country's economic and social structures as a result of conditions imposed by lenders, it can at least thwart economic policy objectives and reduce policy space. Morocco has a long history, which was not always happy, with external indebtedness dating back to the pre-protectorate period. After the rescheduling of its external debt under the Structural Adjustment Plan, Morocco will reconsider its external debt policy. Indeed since its return to international financial markets in 1996, it will try to control the level of its external debt to avoid any drift that would lead it to relive the scenario of the 80s. In this context, this study analyzed, in the case of Morocco, the impact of a certain number of factors which are identified by the literature as being determinants of external indebtedness in emerging economies. Using data covering the period 1998-2019, analyzed with an ARDL model, our results show that external sector factors are preeminent in explaining the outstanding external debt of the central government in Morocco, leaving assume that the major concern of the public authorities is to maintain a certain balance in the external accounts.

External Debt and Economic Growth: A Heterogeneous Static ‎Panel Study in Asian Developing and Transition Economies

Abstract‎This study examined the impact of total external debt, public external debt, and private external debt on economic growth of ‎Asian ‎developing and transition economies economic growth from 1995 to 2019. We ‎applied the fixed effect model with two ‎robust estimators of the feasible generalized least square estimator ‎and Driscoll-Kraay standard error estimator to address the ‎cross-sectional dependence. The findings showed that the total external debt has a significant and positive impact on economic ‎growth while the public external debt and private external debt affect economic growth adversely. ‎

Does public debt secure social peace? A diversionary theory of public debt management

This study analyzes the strategic use of public debt. Contrary to the classical view that politicians can use public debt to tie the hands of their successors, we show that an incumbent government can take advantage of having tied its own hands before the election with the help of public debt. By doing this, it reduces the basis for future social conflicts and benefits from social peace during its term, which may enhance its chances of being re-elected. In addition, in the case of foreign or external public debt, the incumbent can strategically divert future social conflicts toward a common enemy (foreign creditors). Thus, by increasing public debt before the election, the incumbent can strengthen social cohesion during his/her mandate, both by reducing the basis of internal conflicts and by diverting citizens from internal toward external rent-seeking activities.

ՀՀ տնտեսության պարտքային անվտանգության խնդիրները Արցախյան պատերազմի համատեքստում

The 2020 began with the Coronavirus crisis and ended with the Artsakh war, causing both financial and human losses. An extremely difficult economic and political situation was created for the Republic of Armenia. The volume of military expenditures, which is expenditure priority due to military operations, has increased by about 40 billion drams in the current year. The epidemic restrictions reduced tax revenues by about 113 billion drams. The purpose of this article is to reveal the challenges that Armenia has been facing, due to the epidemic and the Artsakh war, substantiating the approach, that the above-mentioned instabilities will inevitably lead to a violation of the logic of the planned economic growth. During the research, the indicators of the government debt-to-GDP ratio of different years were calculated by the method of quantitative analysis, which show the amount of the debt burden. As a result of the research we came to the conclusion that the economic problems will lead to an increase in the budget deficit. And the lack of the resources to finance the latter will make it inevitable for the Republic of Armenia to attract new external public debt, which will increase the already heavy external public debt burden of the RA. Considering the above-mentioned issues as a priority, this article aims to study the dynamics of the external debt obligations of the RA economy during the difficult economic and political period for the Republic of Armenia.

Effects of External Public Debt Cancellation on the Economic Growth of the Republic Of Congo

This study, through temporal data and the ARDL process, examined the effects of the cancellation of external public debt on economic growth in the Republic of Congo over the 1990 to 2016 period. From this review, it appears that debt cancellation has a positive impact on economic growth over the short-term and a negative impact over the long term. Beyond these results, we believe that additional research is needed to examine the channels through which external public debt cancellation influence economic growth in the Republic of Congo.

The impact of public external debt on private investment. Evidence from Zimbabwe under the multi-currency system.

The levels of public debt have grown significantly in both emerging and developed countries even during times of peace. The rising levels of debt pose substantial debt sustainability issues to developing countries including Zimbabwe. A defaulting country usually has limited access to new international credit lines or tends to borrow at a higher cost, due to high perceived country risk premium, making the country a less attractive investment destination. Zimbabwe is currently suffering debt distress and has since the year 2000 struggled to service her external debt from international multilateral financial institutions. Zimbabwe’s external debt continues to pile up due to penalties on defaults. This paper examines the impact of public external debt on private investment in Zimbabwe, using quarterly time-series data for the period 2009 and 2017. The period of study was a period of relative stability when Zimbabwe operated under a multicurrency system. Interest rates, political risk, trade openness and household consumption are control variables of this study. Using the Vector Error Correction Model (VECM), we find that external debt and external debt squared have a negative impact on private investment in the long run. Results suggest that Zimbabwe’s external debt is crowding out private investment. In the short-term, we urge the government of Zimbabwe to apply for debt rescheduling to avoid penalties that have so far contributed to the ballooning of Zimbabwe’s external debt obligations. In the medium term, we urge the government of Zimbabwe to design comprehensive debt and arrears reduction strategies, to reduce Zimbabwe’s external debt to sustainable levels. In the long term, after regaining borrowing rights, we urge the government of Zimbabwe to invest external borrowings in productive ventures, to facilitate debt amortisation. Secondly, we recommend that external debt be invested in education, health and infrastructure, which can potentially stimulate private investment, and thus create a multiplier effect on economic growth. Lastly, we recommend the government to invest foreign loans in sectors where Zimbabwe enjoys a comparative advantage, to ensure reliable export revenue for debt servicing.

The Effects of Public Debt on Economic Growth in Sri Lanka

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.

Does debt relief “irresistibly attract banks as honey attracts bees”? Evidence from low-income countries’ debt relief programs

The Covid-19 crisis has recently rekindled discussions about debt relief, leading official lenders to grant a moratorium on low-income countries’ external public debt service. Private creditors, which had massively invested in LICs (especially in Africa), have been so far relatively spared. But would they keep lending to these countries if a new wave of debt write-offs were to occur? Building on the two largest debt relief programs for LICs, namely the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), we investigate whether debt relief leads international private creditors to withdraw or to resume lending to beneficiary governments. Using a difference-in-differences approach, our results suggest that debt relief has fostered borrowing from private creditors, and identify the absence of reputational effects and the short-term horizon of private creditors as the key drivers that made renewed access to the credit market possible.

EXTERNAL GOVERNMENT DEBT MANAGEMENT OF UKRAINE IN CONDITIONS OF SOCIAL AND ECONOMIC AND PANDEMIC SHOCKS

Introduction. The consequences of the COVID-19 pandemic on macroeconomic dynamics and the state of external public debt are analised. The main reasons for the growth of the State Budget deficit of Ukraine are identified and the need to increase the efficiency of the external public debt management policy in the context of minimizing the budget deficit is proved. Emphasis is placed on the situational and imbalance of Ukraine’s external public debt management policy, which is due to the lack of the Economic Development Strategy of Ukraine and the Government’s program of activities for 2020. It is substantiated that the lack of clear strategic goals of economic development of the state and adherence to such a strategy has led to an increase in the cost of servicing external pu blic debt, increasing the cost of attracting it and reducing the maturity. It is also proved that the lack of strategy together with the low level of fiscal, debt and monetary policy coherence are the main reasons for inefficient conversion of external public debt, as the main amounts of external government borrowing are not used to finance economic development, but to finance state budget expenditures and to repay old debts. The purpose of to the article is to study the theoretical and practical aspects of debt policy in the context of the COVID-19 pandemic in order to justify a new paradigm of Ukraine’s external public debt management policy. Results. Based on the analysis of major macroeconomic trends in Ukraine and identifying external debt problems, the latest paradigm of external public debt management policy is proposed, the essence of which is to subordinate debt policy to tactical and strategic goals of the national economy budget, debt and monetary policy, as well as in achieving effective conversion of external government borrowing to stimulate economic development. It is proposed to use a program-targeted method of external public debt management policy, which involves raising funds from international organizations exclusively to finance specific government programs. Perspectives. It is necessary to increase the efficiency of conversion of external government loans to finance capital investments from the State budget, which will use the foreign debt potential to stimulate Ukraine’s economic development.

ОЦІНКА РІВНЯ БОРГОВОЇ БЕЗПЕКИ В УКРАЇНІ

The purpose of the article is to assess the level of debt security of the state and justify the formation of its strategy. The main element of creating an effective debt strategy is the analysis of quantitative indicators of public debt and assessment of debt sustainability of the state. Without such a study, the formation of the state debt policy strategy and management decisions will be impossible, as it will not have a scientifically sound basis. The article presents the threshold values of debt security indicators, which allow to qualitatively assess the state of debt security of Ukraine. The thresholds of the indicators form a clear concept and understanding of the level of security and the current situation and the international debt policy market. Examining the debt burden, which is formed by these indicators, you can make a forecast and redistribute cash resources in the budgets of future periods. Ukraine's debt security assessment has been performed. Based on the assessment of debt sustainability indicators of Ukraine's external public debt, a tendency to increase not only the absolute and relative indicators of Ukraine's external public debt, but also indicators that inform about the risks of deterioration of the country's debt sustainability indicators. It is established that at the moment the debt situation in Ukraine is rather unstable. The leading role in this is played not only by the amount of debt, but also its relationship with the real and financial sectors of the economy. Declining exports, declining inventories, the crisis in the euro area, and low labor efficiency increase the risk of default. The necessity of formation of optimal debt structure is proved and long-term tasks of formation of debt policy for Ukraine are defined, in particular, planning the cost of repaying and servicing public debt, planning the debt portfolio, directing state guarantees to infrastructure, establishing control over the level of international reserves, establishing the expediency of financing social expenditures and reducing financial borrowing to cover deficits and interest rates and effective exchange rate policy.

LOGOS OF EXTERNAL PUBLIC DEBT: ONTOLOGICAL AND EPISEOOLOGICAL ASPECTS

Introduction. The article considers the theoretical foundations of the essence of external public debt based on the combination of the plurality of its ontological interpretations with other categories of public finance. The content of the concept of external public debt from the standpoint of its understanding as an economic phenomenon, economic category, an instrument of macroeconomic policy and financial burden for future generations is considered. The main approaches and tools of external public debt management are described. The aim is to build a fundamental theoretical construct of the study of external public debt in terms of substantiating its ontological and epistemological interpretations based on the study of relationships with other categories of public finance and the need to create a basis for effective policy of external debt management. Method (methodology). The article uses methods of empirical and retrospective analysis of world and domestic economic thought in order to identify the fundamental foundations of external public debt; methods of generalization and comparison of scientific approaches to determining the logo of external public debt; a systematic approach to justify the relationship and interdependence of external public debt and other categories of public finance. Results. The article formulates the logos of external public debt as a theoretical and philosophical construct of expressing external public debt not only as a unity of components, but a combination of multiple ontological interpretations with other categories of public finance, credit and international relations, national interests and comprehensive orderly reflection of their relationships for the level of confidence and cyclicality in the economy. Such ontological interpretations of external public debt as economic phenomenon, economic category, macroeconomic policy instrument, factor of influence on other categories of public finances, national income and economic processes, object of management are singled out. The conceptual principles of external public debt management are determined.