Foreign Public Debt Research Articles

Public debt, investment and economic growth dynamics: Do geographical proximity and spatial spillover effects matter?

This study employed an innovative spatial econometrics approach to analyze the spillover effects of foreign public debt and foreign direct investment (FDI) on regional economic growth dynamics of Eastern Africa. Specifically, we utilize Spatial Durbin Fixed Effect (SDM-FE) Model, drawing on balanced panel data from the World Development Indicators (WDI) for the period 1992–2019. This study contributes by utilizing a spatial weight matrix and investigating its interactions with economic growth and various other macro-regional factors, thereby unveiling the presence of spatial spillover effects and the impact of geographical proximity of countries within the region. Our results indicate that foreign public debt, FDI, gross fixed capital formation, human capital development, inflation, and government expenditure, significantly have spatial spillover effects on regional economic growth. Additionally, the results underscore the presence of regional growth divergence and provide further evidence of substantial regional spatial dependence in economic growth. Based on these outcomes, it is evident that foreign public debt has a negative impact on economic growth, which is consistent with the debt overhang theory and the crowding-out hypothesis. Moreover, the foreign public debt and regional growth policies should be devised considering the geographical interconnectedness between countries in the region, as the research output has revealed the impacts of growth and debt spillovers among the countries studied. Policies that prioritize these objectives would promote long-term regional economic growth and prevent the effects of excessive foreign public debt by creating a favorable macroeconomic climate.

Зовнішній державний борг україни на сучасному етапі: дорожня карта управління

The article examines the issue of improving the road map for the management of external public debt in wartime. Managing foreign public debt during wartime requires a comprehensive and strategic road map to address such circumstances’ unique challenges and risks. We offer a road map for managing external public debt in wartime, which considers the international debt relief initiatives analyzed in the post-war reconstruction of Europe. This roadmap provides a comprehensive approach to managing Ukraine’s external debt in wartime conditions and provides a framework for decision-making and adaptation to changes in the economic environment. It is aimed at preserving financial stability and ensuring economic stability in the conditions of military conflict. International debt relief initiatives in the post-war recovery of Europe are singled out, which can serve as an example for reducing the debt burden in Ukraine. The only way to ensure external debt security in the war and post-war period in Ukraine is to increase the economic growth rate and carry out reforms within the framework of the implementation of the Recovery Plan of Ukraine, which would increase the credit rating and reliability of the state. Ukraine’s participation in international cooperation is vital in managing external public debt and supporting economic development goals. For Ukraine, the fundamental way to solve the public debt problem will be to achieve stable and adequate economic growth. This will contribute to an automatic reduction of the debt-to-GDP ratio and an increase in tax revenues to the state budget without the need for excessive burden on businesses and individuals. The country’s debt security risks are identified and characterized. Keywords: debt, external public debt, road map, management, state.

Analyzing the Signaling Effect of Public Debt to Foreign Investment in Nigeria

This study examines the effects of public debt on foreign investment performance in Nigeria. This was aimed at ascertaining how DPD for domestic public debt, FDB for external public debt, and DS is for fiscal deficit have stimulate the foreign direct investment (FDI) performance in Nigeria for the period 2000 to 2021. Historical data was collated and estimated employing the ARDL- based Ordinary Least Squares (OLS) technique. The empirical results indicate that foreign direct investment responded to domestic debt and debt servicing negatively, but positively to foreign public debt in Nigeria. On the basis of the findings of this study, the following recommendations are made. The government should regularly review their domestic debt policy for reduction, policies that promote more foreign debt be adopted as against domestic debt and government should invest debt on income-generating ventures to reduce the burden of servicing.

The role of foreign public debt on foreign exchange reserve in SSA countries: Does governance really matters?

The role of foreign public debt on foreign exchange reserve in SSA countries: Does governance really matters?

Comparative Performance of Trade Openness and Sovereign Debt Accumulation in Fostering Economic Growth of Sub-Saharan African Countries

In the last four decades, sub-Saharan African countries have witnessed a substantial increase in trade openness and sovereign debt (foreign public debt and domestic public debt). The direct and interactive effects of these factors on economic growth are investigated in this study. The investigation covers the period 1980–2020 and employs the generalised method of moment methodology. The estimation results reveal that the direct effect of trade openness and domestic public debt is significantly favourable. The direct effect of foreign public debt is, however, found to be unfavourable. The results also reveal that the interactive effect of trade openness and domestic public debt is significantly favourable, whereas the interactive effect of trade openness and foreign public debt is fairly favourable. The estimation results thus imply that trade openness and sovereign debt are complementary drivers of economic growth in sub-Saharan African countries. In spite of the favourable role of trade openness and sovereign debt, economic growth has yet to achieve the desired level, which does not augur well for employment and welfare. The prospects of growth could be enhanced by strengthening the impact of trade openness and sovereign debt. However, policy makers should be aware of the direct negative impact of foreign public debt on economic growth, and the need to put measures in place to manage it. JEL Codes: F23, H63, F43, O55

Дипломатичний супровід зовнішнього державного боргу України

The purpose of the article is to substantiate the measures regarding diplomatic support of the Ukraine's foreign public debt in the conditions of a critical budget deficit. The analytical basis of the proposals are the results of the assessment of trends in the development of international flows of debt capital and the world experience of diplomatic assistance to countries in the process of overcoming their debt crisis. It has been established that the process of international movement of loan capital, in which countries are active participants regardless of the economic development level, is characterized by dynamic trends of value growth. A critical factor in the growth of public debt in Ukraine is the decrease in the value of GDP and the inability to cover the budget deficit as a result of high military and social costs. It has been proved that the minimization of risks associated with the State's dependence on international borrowing is possible under the condition of effective diplomatic support of the external debt at all stages of its formation and maintenance. Ukraine has positive results of diplomatic debt support (favorable conditions for obtaining new loans, partial restructuring of existing debt). However, in the future, under conditions of preservation of current trends, the growth of foreign debt will pose a threat to the economic security of the State. Based on the analysis of alternative options for overcoming the debt crisis, the authors substantiate the expediency of Ukraine's diplomatic request to international creditors for preferential debt restructuring; active cooperation with foreign countries regarding mediation in interaction with international financial organizations in the direction of initiating special programs of financial support for Ukraine. Diplomatic support of foreign public debt should occur simultaneously with the further integration of Ukraine into the European Union, measures to stimulate economic growth in the country, which will contribute to increasing the international investment attractiveness and credit ratings of the national economy.

The Philosophy of External Public Debt Management

The main goal of the presented article is to propose effective solutions in the philosophical context of the management of the foreign public debt of RA. The Government of the RA should adopt as a priority the philosophy of attracting borrowed funds from the domestic market. Considering also the fact that the Republic of Armenia relied on the philosophy of ensuring double-digit economic growth, having a long-term goal to increase the real GDP indicator, which will ultimately contribute to reducing the volume of debt obligations. As a priority contributing to this goal, the RA Government intends to significantly increase the volume of trade turnover[1], especially in connection with the current geopolitical situation, when Armenia, in particular, is the “gateway of Europe” for Russia, which is the main trading partner. [1] In 2021, major trading partners of the RA included Russia from the CIS countries (31.4% of trade turnover, compared to 30.6% of the previous year), and from the EU and other countries China (15% and 13.5%, respectively), Iran (6.0% and 5.6 %), Switzerland (4.6% and 6.6%), Germany (3.5% and 4.2%), Italy (3.4% and 3.3%), Bulgaria (2.7% and 2.4%) and the Netherlands (2.7% and 1.8%). Source: RA Ministry of Finance www.minfin.am.

The Impact of Tourism Income on Foreign Reserves in Jordan during the Period 2005-2020

This study aimed to analyze the impact of tourism income on foreign reserves in Jordan during the period 2005-2020. The study used annual data related to three variables (foreign public debt, trade balance deficit, and workers’ remittances) during the study period; the data were collected from the annual reports issued by the Central Bank of Jordan and the Jordanian Ministry of Tourism and Antiquities. To achieve the aim of the study, the fully modified least squares (FMOLS) test was applied. Among the most important findings of the study according to the Johansen statistical test was the existence of a long-term equilibrium relationship between tourism income and foreign reserves and between the three variables between the variables (foreign public debt, trade balance deficit, and workers' remittances) and foreign reserves. The empirical results of the study also showed a positive and significant effect of tourism income on foreign currency reserves and a positive and significant impact of both foreign public debt and remittances of workers abroad on foreign reserves. This finding was obtained through the statistical FMOLS model. Among the most important recommendations of this study is the need for the Jordanian government to pay more attention to the issue of foreign reserves to keep them at high and comfortable levels. This can be achieved through the Jordanian government’s set of procedures and reviews of laws and policies related to the tourism sector, as it is one of the most important financing sources of foreign reserves. In this regard, the government must provide the necessary infrastructure to revitalize the tourism sector, in addition to reviewing the tax policies and fees imposed on the sector.

THE PUBLIC DEBT PHENOMENON IN FISCAL SUSTAINABILITY, AND FINANCIAL DEVIATIONS IN SELECTED OECD COUNTRIES

In this study, we attempt to put forth the sustainability phenomenon, an empirical that occurs a significant fiscal impact on developing countries, which aim to reach the desired economic growth levels. Sustainability of public fiscal balances, especially in terms of debt policies, refers to a structural impact mechanism that means paying debts without default and restructuring them without risk in a period when the payment and redemption deadlines have come, especially in terms of external debts. This mechanism of influence is also expressed in the restructuring of a financial process, which can be expressed in different values, especially in developing countries, and whether the defaulted public liabilities refer to the later debt phenomenon. In this respect, public fiscal sustainability means that the real level of future primary surpluses is equal to the current real value of the public debt at a fundamental level. In our analytical study, the four countries were taken as the basis and the analytical values of these four countries in the financial balances were determined as emerging economies on the basis of these selected countries as Turkey, Poland, Chile, and Mexico. Besides, based on debts and public deficits, this fact also means a sustainable fiscal structure that can emphasize all kinds of debt phenomena at different levels, especially local governments, and the central government throughout the country. In addition, a debt obligation covering the entire public sphere also expresses sustainability in the narrow sense, representing the central government budget, which is essential in terms of sustainable budget balances. On the other hand, the sustainability of debts in developing countries where foreign public debt is in question, especially the public debt of central banks, can also lead to unexpected financial weakness and vulnerabilities. The policies as public borrowing instruments can create uncertainty about the level of financial-institutional impact in terms of future principal and interest payments and negatively affect fiscal policies sustainability. In this context, the acceptability of this fiscal process regarding the receivables of all institutions such as private bondholders, banks, and the World Bank is accepted as the sustainability of the debts in an ongoing process with mutually positive financial formations. When countries demand debt from financial markets, they have to maintain their fiscal sustainability regarding whether they should retake financial risks, especially in developing countries. This approach, which can also be expressed as the stability of debts, also puts forward a position identical to the expectations of stable ground for developing economic growth potential and financial infrastructure.

Switching latent factor value-at-risk models for conditionally heteroskedastic portfolios: A comparative approach

In this paper, a computationally efficient Monte Carlo-based latent factor modeling approach for portfolio Value-at-Risk (VaR) estimation is introduced. We examine whether the inclusion of conditional heteroskedasticity in financial returns, and taking into account for possible hidden (Markovian) “regime changes” in the latent correlation structure of the portfolio can enhance the accuracy of VaR forecasts. Practical details of training such models with the expectation-maximization algorithm are also discussed. In conjunction with an approximated version of the Kalman filter, we show how to calculate maximum likelihood estimates of the model parameters, and to yield inferences about the unobservable path of the common factors, their volatilities and the hidden state sequence of the Markov process. The methodology is illustrated by an example using data from the Tunisian foreign exchange market, over the period of the Tunisian revolution from January 02, 2010 to December 30, 2012. We found that this new specification exhibits a good fit to the data, improves the accuracy of VaR predictions of the Tunisian foreign public debt portfolio and reduces the number and average size of back-testing breaches when a financial crisis occurs.

Statistical analysis of the state debt of Ukraine in modern economic conditions

The public debt at the present stage is an objective economic phenomenon, a component of the financial system and a tool for implementing the economic strategy of the country, and its effective use can be a powerful factor in its economic growth. The paper is devoted to the study the economic essence, current state, structure and main trends of the total public debt of Ukraine. Essence of national debt, state-guaranteed debt, foreign and domestic debt and maintenance of relative amount and rate of debt are exposed. Under the type of debt obligation, public debt is divided into direct (unconditional) and guaranteed (conditional) debt, which arises as a result of the state's obligations to third parties or guarantees for these obligations. There is also a division of public debt by type of creditor. Domestic and foreign public debt are distinguished on this basis. Based on statistical data of Ministry of finance of Ukraine and Government service of statistics of Ukraine the dynamics of the debt of Ukraine is analyzed and an analysis of its structure according the type of debt obligation, and the type of creditor is carried out. Public and state-guaranteed debt during 2016–2020 grows on average annually by UAH 195.95 billion or 10.2 %. The state external debt of Ukraine increased during the period under study from UAH 980.19 billion on 01.01.2016 to UAH 1258.52 billion. at the end of 2020 with a decrease in 2019 by UAH 168.54 billion. The impact of external borrowing on economic growth is determined by the relative size of debt the share of public debt in GDP. The analysis of the indicator shows that in 2016–2020 it decreased from 81.0 % at the end of 2016 to 50.3 % in 2019, which corresponds to the legal norm, while in 2020 its share has already reached 60.8 %, which is 10.3 % more than in the previous year.

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.

РЕГУЛЯТОРИ І ВАЖЕЛІ АНТИКРИЗОВОЇ ПОЛІТИКИ ДЕРЖАВИ У СФЕРІ ВАЛЮТНО-ЕКОНОМІЧНИХ ВІДНОСИН

In the article the definition of the currency crisis as a sharp violation of exchange parity, devaluation of the national currency of a country, the single currency of the economic union, the world reserve currency, etc. for a short period after a period of relatively long exchange rate stability. It is established that the source of the currency crisis can be the banking system, the budget sphere, domestic and foreign public debt, balance of payments, and the channels of influence of factors can be isolated or combined (double, triple, etc.). The main goal of anti-crisis policy in the field of monetary and financial relations is early warning of the crisis. It is shown that the choice of regulators and levers should depend on the model of crisis phenomena in the foreign exchange market, the diversity of which is reduced to the dominance of certain factors: economic, non-economic (military-political, behavioral, psychological), external influence. The retrospectives of four currency crises that have taken place since Ukraine's independence have been assessed, their models have been diagnosed: 1992-1993 – the first, 1998-1999 – mixed (synthesis of the first and third models), 2008-2009 – the third, 2014-2015 – the second. It is statistically shown that the first crisis was the most acute, the third crisis was the mildest. Regulators and levers of anti-crisis policy are defined as a system of interconnected mechanisms of state and market regulation aimed at ensuring the stability of the national currency, its external and internal convertibility, positive balance of payments, growth of official foreign exchange reserves, stimulating the country's export potential. It is proved that the anti-crisis policy of the state in the field of monetary and financial relations should strengthen and complement the operation of market mechanisms with priority given to economic regulators and levers over administrative ones. The main objects of the anti-crisis mechanism in the foreign exchange market, which are implemented in the real and financial sectors of the national economy and are designed to eliminate currency and macroeconomic imbalances, the balance of payments, harmonize monetary and exchange rate policies of the NBU.

Relative Impact of Domestic and Foreign Public Debt on Economic Growth in South Africa

This paper investigates the debt-growth nexus by testing both the impact of aggregate public debt on economic growth and the relative impact of domestic and foreign public debt on economic growth using South Africa as the case study—from 1970 to 2017. Based on the autoregressive distributed lag (ARDL) technique, the findings reveal that the impact of aggregated public debt on economic growth in South Africa is statistically significant and negative, both in the short run and in the long run. The results further reveal that domestic public debt and economic growth have a statistically significant and positive relationship in the short run only. Furthermore, foreign public debt has a statistically significant and negative relationship with economic growth but only in the long run. Therefore, the study recommends the government to manage effectively its debt and to finance long-term high-returning productive investments that should translate into economic growth. Finally, the study cautions the country against growing public debt, predominantly foreign debt, to finance its increasing recurrent expenditure needs.

Effect of Innovative Finance on Kenya’s Public Debt

This study was to determine the effect of innovative finance on Kenya’s public debt. Specifically, it aimed to establishing the effect of foreign remittance, financial transaction tax and guaranteed loan financing on public debt level in Kenya. A descriptive research design was adopted and population of interest for the study was Kenya. Secondary data for a period of 5 years from 2014 to 2018 was utilized while the Vector auto regression model was estimated to establish the relationship between the variables. The results indicated that there is a positive and significant relationship between foreign remittance and public debt in Kenya while a negative and significant relationship was established between financial transactions tax, no significant relationship was established guaranteed loans and public debt in Kenya. The study concludes that foreign remittance has a positive and significant effect on public debt level in Kenya while financial transactions tax has a negative and significant effect. It therefore recommends that the government through relevant institutions should strengthen policies on various innovative taxes including financial transactions tax. This will ensure that more revenue is obtained through taxes; this can be used to repay existing loan as well as financing development.

What Drives the Accretion of the Foreign Exchange Reserves of the Lebanese Central Bank? (1994-2018)

Theory predicts that the optimal foreign exchange rate policy of a central bank, in the presence of perfect capital mobility, and a persistent expansionary fiscal policy, is to fix this rate. Since these fundamentals apply to Lebanon, the Lebanese central bank has judiciously followed the policy of pegging the foreign exchange rate since the end of 1998. However, the actual policy led to a frantic quest for foreign exchange more than the level required or optimal. The behavioral model estimated in this paper worked endogenously from 1994 to 1998, and was actively operated upon afterwards. The model, based on financial engineering concepts, relates the change in the foreign exchange reserves of the central bank to the change in foreign exchange reserves of the banking system, and to the change in the foreign public debt. This model assumes that the central bank swaps government debt, denominated in Lebanese pounds, for a debt in foreign currency, thereby increasing its reserves, and improving the balance of payments. Moreover, the model is based upon the notion that the central bank is able to persuade banks to sell their excess foreign funds abroad for floating notes issued by the central bank, thereby increasing its reserves and improving the balance of payments. Although the central bank has announced publicly that it carried out the financial engineering embodied in the behavioral model discretely, and at specific periods, the paper finds that the same policy was continuously and incessantly undertaken and implemented, but at smaller scales. The crucial evidence comes about from the empirical finding that the change in the net foreign reserves of banks is positively, proportionately and significantly related to the central bank change in foreign exchange reserves. Moreover, part of the increase in foreign debt is funneled to a positive, and significant, relation with the change in foreign reserves of the central bank.

Cross‐Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area

AbstractWe provide evidence for the euro area of spillovers from foreign public debt auctions into domestic secondary‐market auction cycles. We also confirm existing evidence of such spillovers from domestic issues into the domestic secondary market. Consistent with a theory of primary dealers’ limited risk‐bearing capacity, we find that auction cycles from domestic issues are stronger during the recent crisis period, whereas cross‐border effects are stronger in the precrisis period, but this evidence is not strong. This finding likely reflects the opposing effects of reduced sovereign bond market integration during the crisis and higher yield covariances caused by more market volatility.

Assessing Fiscal Sustainability in Ukraine: TVP and VAR/VEC Approaches

Objective: The purpose of this article is to investigate fiscal sustainability in Ukraine, using quarterly data sample for the period between 2000 and 2016, in accordance with a recursive algorithm derived from the law of motion of the debt-to-GDP ratio developed by Croce and Juan-Ramon (2003). Research Design & Methods: An assessment of fiscal sustainability in Ukraine is provided according to a recursive algorithm derived from the law of motion of the debt-to-GDP ratio, developed by Croce and Juan-Ramon (2003). Both time-varying parameters (TVP) and vector error-correction autoregression (VAR/VEC) models are used. Findings: It is found that there is causality running from the budget surplus to the gap between real interest rate and GDP growth rate, however it is not sufficient to guarantee a sustainable debt to GDP ratio. Implications & Recommendations: Our findings argue in favour of fiscal policy actions aimed at an increase in the government revenues, combined with the public sector expenditure cuts, as current policies do not seem to be sufficient to achieve fiscal sustainability. A more detailed study is needed in order to identify most efficient approaches for a decrease in the budget deficit across a detailed ‘menu’ of expenditure and revenues. Any attempts to decrease interest rate and/or stimulate output growth by an expansionary monetary stance are likely to be counterproductive in the presence of substantial public external debt. Contribution & Value Added: This empirical study provides an indication of the possibility of default on foreign public debt liabilities in Ukraine.

Filling the Gap in Historical Statistics: Macroeconomic Indicators of the Debt Burden of the Kingdom of Yugoslavia during Great Depression

The subject matter of this paper are specific causes of sovereign debt default of the Kingdom of Yugoslavia in 1932. In the first part of the paper, time series of public debt, with the subcategories of domestic and foreign public debt, for the period from 1929 to 1939, were constructed on the basis of data from Statistical Yearbooks of the Kingdom of Yugoslavia and the League of Nations. In the second part of the paper, the sustainability of public debt of the Kingdom of Yugoslavia has been measured with help of relevant macroeconomic indicators: public debt-to-GDP ratio and debt service-to-public revenue ratio. In the third part of the paper, decomposition of public debt data has been made with respect to the methodology used in Statistical Yearbook of the Kingdom of Yugoslavia. This decomposition has shown that public debt accumulation had to do little if anything with the Great Depression and was to a large extent caused by political, economic and financial consequences of the Great War.

The legal consequences of sovereign insolvency – a review of creditor litigation in Germany following the Greek debt restructuring

This article analyses three seminal instances of bondholder litigation before German municipal courts following the Greek sovereign debt restructuring of 2012. While the haircut imposed on private bondholders led to a significant reduction of the country’s debt level in 2012, thousands of German investors subsequently challenged the Greek government’s decision before German courts. In this context, as this article highlights, even within a single jurisdiction, courts may hold very different views as to which debt management measures by a sovereign borrower ought to be considered ‘public’ legal acts – thus barring foreign bondholder suits – and which are ‘commercial’ legal acts, where litigation is a feasible legal avenue for disgruntled creditors to recover losses. In sum, however, German courts were reluctant to grant broad enforcement remedies to private bondholders, essentially vindicating the Greek government’s strategy of rewriting local law and retrofitting so-called ‘collective action clauses’ to increase bondholder participation in the restructuring. Against this background, this article discusses some of the decisions’ potential implications, such as the increased prospects for other crisis-stricken governments to successfully repeat a Greek-style debt restructuring as well as the future treatment of foreign and domestic-law public debt both by courts and market participants.