High Government Debt Research Articles

The Impact of High Government Debt on Economic Development in Somalia

This study focuses on the impact of high government debt on economic development in Somalia. The specific objectives of the study encompass: to examine the impact of high government debt on Somalia's economic development, to explore the strategies that can be used to mitigate the negative impact of high government debt on economic development in Somalia and to evaluate the role of international financial institutions in managing high government in Somalia. This study employed descriptive research design and quantitative research method to investigate the impact of heavily-indebted on rebuilding economic development in Somalia. The study employed purposive sampling technique to select the participants of the study. The sample size of the study was 80 participants. To collect data from the respondents which they entail: Government officials, Economic analysts, representatives from financial institutions, Business owners and entrepreneurs, representatives from Non-governmental organizations (NGOs) and Academics (researchers and scholars). The study adopted close-ended questionnaire instrument data collected from the respondents of the study was entered, coded, sorted, organized and analyzed using Statistical Package Software Science (SPSS) version 28. The key findings of the study on the impacts of high government debt on Somalia's economic development entail: limited access to credit, increased debt servicing costs, inflation and currency depreciation, reduced investor confidence, limited fiscal space, vulnerability to external shocks and social unrest. The strategies the can be used to mitigate the negative impact of high government debt on economic development in Somalia include: promotion of financial literacy, strengthening regulatory framework, encouragement of diversification of the economy, Improving infrastructure and access to financial services, implementation of debt management strategies, fostering a conducive business environment and seeking external assistance and debt relief. And the role of international financial institutions in managing high government debt in Somalia entail: providing financial assistance, negotiating debt relief, offering technical expertise and supporting capacity-building. The study recommended that the Federal Government of Somalia should improve fiscal management and should work with international financial institutions and creditor countries to negotiate debt relief and restructuring agreements to reduce the burden of debt payments and boost economic development.

Don’t blame the government!? An assessment of debt forecast errors with a view to the EU Economic Governance Review

In view of the increased importance of debt developments in the EU governance framework, this paper investigates the accuracy and the main economic causes of forecast errors in (government) debt projections. We find a positive average debt forecast error for European Union member states, which increases with the projection horizon. Underestimation of debt growth is particularly relevant for countries with high government debt. The main drivers of the debt forecast errors seem to be partly outside direct government control: Wrongly projected overall GDP developments and stock flow adjustments - a factor which has not been considered in the literature so far. Moreover, the high uncertainty in debt forecasts is also inherent in the European Commission’s benchmark forecasts: only their now-cast remains unbiased.

Monetary and Fiscal Policy Interactions: Risks to Price Stability in Times of High Government Debt

Monetary and Fiscal Policy Interactions: Risks to Price Stability in Times of High Government Debt

Exploring The Role of High Government Debt on Economic Growth: A Nonlinearity and Threshold Analysis for Africa’s Developing Countries

Purpose: This paper empirically investigated the impact of high government debt on economic growth, using a panel data of 12 developing countries in Africa for the period between 1991 and 2020. Furthermore, it sought to find the existence of nonlinearity between government debt and economic growth. The study used a cross-country panel data approach estimated through the panel smooth transition regression to find the threshold effect. The results reveal a threshold of 60.5% of government debt on economic growth, suggesting an inverted U-shaped relationship between government debt and economic growth for the whole sample. After this threshold, additional government debt starts impeding economic growth. The estimated slope parameter of 18.11 supports the smoothness of government debt from a low regime to a high regime of debt. In the lower debt regime, government debt boosts economic growth; however as the level of debt growth surpasses the peak point, economic growth decreases. By implication, policymakers should have strict debt management policies in place to keep the level of government debt low, and be able to respond robustly to an economic shock. While resorting to borrowing to finance public spending, especially during economic crises, may be an imperative, it should be done in a circumspect manner so that the borrowings are kept at tolerable levels and reduced and/or repaid when there is a recovery in the economy.

Uncertain policy regimes and government spending effects

Money financing returns to policy debate as governments around the world adopted massive fiscal measures during the pandemic. Using a fully nonlinear New Keynesian model with endogenous policy regime switching, we show that a moderate inflation-driven switching probability to a debt-financing regime reduces money-financed spending multipliers. When interacted with high government debt, money-financed spending multipliers fall below one, similar to the size of debt-financed spending multipliers. This result holds at the zero lower bound, with long-term government debt, and under a wide range of key parameter values. Policy regime uncertainty, on the other hand, has little effect on debt-financed spending multipliers.

From Short-Term Risk to Long-Term Strategic Challenges: Reviewing the Consequences of Geopolitics and COVID-19 on Economic Performance

The COVID-19 crisis and the war between Russia and Ukraine affects the world economy badly. The western countries’ economic sanctions on Russia and the Russian government’s reverse sanctions on western countries create pressure on the world economy. This study was conducted to investigate how the economic performance is responding to COVID-19 and the geopolitical crisis of the era. In doing so, both theoretical and numerical data reviews have been performed. The objective of the study is to investigate the short-term risks and long-term strategic challenges of the crisis. The study used a bibliometric approach with the help of RStudio software. The Web of Science database was used for extracting the resources in line with the grey literature from the Google Search engine. A total of 895 documents were utilized in this bibliometric analysis. At the same time, secondary panel data extracted from the international monetary fund (IMF) for a period of 4 years (2019–2022) were utilized for reviewing numerical implications. The purposive sampling technique is used for data selection and main economic variables. The findings of the study imply that countries over the world registered less economic growth, high inflation rate, and high government debt in 2022 compared to the fiscal period of 2019–2021. The emerging economies and developing countries of Europe were badly affected by the crisis as the level of inflation rate hit 27 percent and the economic growth of the region registered a negative 2.9 percent. The study also found rising interest rates, exchange rate volatility, risk of stagflation, and rising energy prices are the short-term risks to economies. The issue of sustainable development goals and green aspects, risk of hyperinflation, and risk of economic recession are the long-term strategic challenges or risks to economies. Bailout and debt relief were found to be necessary for those countries badly affected by the crisis. Policymakers should facilitate financial policies and should switch from general assistance to targeted support of viable enterprises.

Privatization in India

Abstract: Privatization generally is defined as the process of transfer of ownership, it can also be permanent or just for the years for which a particular contracted has been drafted between the parties. It is basically a route from public ownership to private ownership. On the other side it is also a strategy that provides advantage to a few at the price of many. In the 1960's and 1970's academicians, economists and politicians favored state ownership over personal possession within the production and provision of products and services. By the tip of the 1980's, however, there was a reversal of public policy from state domination of the assembly and provision of products and services to non-public ownership and operation. This was due partly to what the globe Bank observed as “state failure”, that was characterized by inefficient service delivery, unprofitable SOEs, high government debt, and stagnant economic process rates. Consequently, privatization caught on in several countries as a policy tool to foster potency, encourage investment, free public resources for investment in infrastructure and social programs to boost economic process and spatial arrangement equity. This paper also discusses the causes and reasons for privatization to happen in India and what are its pros and cons.

The Dynamic Relationship between China’s Economic Cycle, Government Debt, and Economic Policy

Economic growth is an integral part of the Sustainable Development Goals (SDGs), especially SDG 8. We combine 10 economic constraints and build a five-variable (structural vector autoregressive) SVAR model based on China’s time series data of 1978–2017. The empirical results show: (1) The Chinese government adopted different economic policies at different stages of reform and opening up; (2) From the impulse response results, China’s excessively high government debt ratio has begun to inhibit economic growth; (3) In terms of policy selection and coordination, the Chinese government mostly adopts a “discretion” adjustment strategy. In most cases, the fiscal and monetary policies were in the same direction, and the “double expansionary” and “double contractionary” policy coordination may become mainstream; (4) The results of variance decomposition showed that both fiscal and monetary policies can effectively regulate economic growth at the present stage, and the contribution rates of exogenous shocks to the prediction variance of economic growth rate were about 25%.

Cultural Impediments to Entrepreneurship Development

Purpose: The country direly needs to develop its entrepreneurial capability which is the key engine for economic development and poverty eradication. The Sri Lankan culture embraces collectivism and the traditional values of Theravada Buddhism, a belief system which inherently functions against the fostering of entrepreneurial spirit. Removing impediments to entrepreneurship is a key challenge for the country.
 Findings: Sri Lanka is presently recovering from the destruction of the economy because of 30 years of civil war. The country is confronted by high government debt representing almost 80% of the GDP. Almost half of the population lived on less than $5 per day in 2013.
 Originality/value: Using Sri Lanka as a case in point, this paper assesses the influence culture has on entrepreneurship and explores initiatives and measures that can be used to strengthen inherent cultural values that stimulate entrepreneurial spirit, encourage risk-taking, and in turn promote economic development.
 Paper type: Research paper.

Long-Term Impact of Economic Downturn and Loneliness on Psychological Distress: Triple Crises of COVID-19 Pandemic.

Background: The COVID-19 crisis poses global mental health and global economy challenges. However, there is a lack of longitudinal research investigating whether financial instability and social disruption may increase the risk of developing mental health problems over time that may potentially outlast the pandemic. Methods: We conducted an online survey for members of the general population (n = 2703) in Germany during the twelve months spanning from April 2020 to March 2021. We investigated the development of COVID-19 related psychological distress, the number of unemployed people, federal government debt, income distribution, and loneliness over the time period. Results: Over a period of twelve months, 53.6% of respondents in Germany reported experiencing psychological distress, varying from mild levels, 34.2%, to severe levels, 19.4%, of distress. High federal government debt, high incident COVID-19 cases, low incomes, and the prevalence of loneliness were found to be associated with increased long-term mental health problems. Psychological distress scores were most strongly increased in female and young respondents as well as those who reported fewer years of education, low income, and higher loneliness. Conclusions: Our study highlights factors that have a long-term impact on mental health amid the COVID-19 pandemic. We suggest that specific mental-health services could be offered to support high-risk groups experiencing financial fragility and loneliness. For purposes of safeguarding their mental health there is a need to monitor and track such risk factors in real time.

Interregional fiscal transfers resulting from central government debt: New insights and consequences for political economy

AbstractThe political geography of central government debt has hardly been investigated. We propose a method for calculating implicit interregional transfers stemming from central government debt.We apply this method to Belgium over the 1970‐2016 period. The share of poorer Francophone Belgium in debt‐financed central government spending was persistently larger than its share in central government revenue used to pay the resulting interest bills. The opposite holds for richer Flanders. Also, a primary deficit in one particular year leads to an interest bill in each of the following years as long as debt caused by that primary deficit is not repaid. All the above caused debt‐related transfers from Flanders to Francophone Belgium of over 7% of Flemish GDP during many years.Interregional interest transfers may also be large in the many other democracies suffering from both high central government debt and considerable geographic income disparities.The size of these transfers may in turn explain the size and persistence of central government deficits. This is also because poorer, less densely populated regions such as Francophone Belgium tend to be overrepresented within central governments. This strengthens their ability to cause deficits.We recommend more fiscal decentralisation or at least smaller central government deficits.

Real Convergence Across the Euro Area

This paper studies the relationship between real convergence in the euro area and macroeconomic imbalances. It compares the main features of convergence within the euro area with other EU and non-EU country groups, looking at both ‘sigma’ and ‘beta’ convergence in output and total factor productivity. Expected convergence paths for euro area countries are estimated using growth regressions run on a large panel of advanced and emerging market economies and compared to actual growth. The findings support the view that EU and euro area countries display similar convergence patterns to those of other country groups, while the group of countries that adopted the euro first exhibit relatively weak convergence since before the financial crisis. Such differences could be partly linked to relatively low dispersion in per capita incomes across this country group, although lack of convergence is also largely due to persisting differences in total factor productivity performance. The findings also suggest that macroeconomic imbalances accumulated in the pre-crisis period such as high private and government debt and strong growth in the non-tradable sector have been associated with lower convergence, particularly for euro area countries.

Money/Asset Ratio as a Predictor of Inflation

This paper modifies a P-star model to forecast inflation using an argument that is in line with the concept of “price gap”. Liquid assets such as government bonds are also included to measure money demand for asset transaction. The out-of-sample forecast results show that, at least since the early 1990s, money supply/government debt ratio has been a useful predictor of U.S. inflation over one- to three-year horizons. The paper also argues that inflation dynamics in the U.S. since the early 1960s can be explained by two ratios: money supply and government debt as percentage of gross domestic product. Moreover, the relationship between inflation and government debt is negative as the latter positively affects the demand for money. Therefore, a low inflation today can be explained by a high government debt relative to money supply.

Money and capital in a persistent liquidity trap

Using a monetary model with asset scarcity, we show that a liquidity trap caused by a persistent deleveraging shock increases real cash holdings and decreases investment and output in the medium term. This medium-term supply-side effect arises when firms face financial constraints. Policy implications differ from shorter-run analyses implied by nominal rigidities. Quantitative easing leads to a deeper liquidity trap. Exiting the trap by increasing expected inflation or applying negative interest rates does not solve the asset scarcity problem. A higher government debt helps exiting the liquidity trap and reduces asset scarcity, but may hurt investment in the medium run.

Government Borrowing Behaviour: Implications for Private Sector Growth in Nigeria

This study seeks to examine the relationship between government borrowing behaviour and private sector growth in Nigeria. It utilises the Structural Vector Auto-regressions (SVAR) model to analyse the dynamics of government borrowing behaviour on the growth of private sector in Nigeria. The results from impulse response functions and variance decomposition appear to provide evidence that government borrowing behaviour has the tendency of impacting negatively on the effectiveness of private sector grow in Nigeria. This result can be explained, based on the fact that government has higher capacity to borrow than the private sector and this tends to crowd-out private sector in mobilising funds for investment and thus impacted negatively on their capacity to grow. The study, therefore, recommends that both fiscal and monetary authorities should improve on measures and policies that could enhance private sector growth, as higher government debt could create burden for future generations, disrupt movements in interest and exchange rates as well as hinder private investment. Doing this has the potentials of improving performance of private sector and the aggregate economy in Nigeria, since empirical literature is replete with evidence of existence of these channels.

The Social Issue in the Company

In this study, we investigate the impact of government debt on the economic growth of Ghana adopting the methodology of the simple Ordinary Least Squares with data spanning from 1990 to 2015. Ghana has unfortunately found itself in the tragic situation of high external government debt which has led to high dependency on aid and other loans to support its development. These aids and loans have seen the debt of Ghana rise steadily over the years. As a result of the Heavily-Indebted Poor Countries (HIPC) which was presented by the IMF and World Bank in 1999, Ghana was judged to be a HIPC with unsustainable debt enabling the country to benefit from debt relief. We investigate the impact of government debt (both external and domestic) by testing three related models at the domestic and external levels including the general growth of the Ghanaian economy. In constructing our dataset, we build on the study of many scholars including a substantial amount of new materials from both primary and secondary data sources being Ministry of Finance (MOF) or Treasury Latest actual data: Government Finance Statistics Manual (GFSM), Ghana and World Bank. The research findings revealed that there is a negative relationship between debt (domestic and external) and growth in the economy of Ghana and recommend among others that government debt borrowing should be discouraged while increasing the revenue base through tax reform programs is encouraged.

A Critical Review of the Dynamics of Government Debt Servicing in Zimbabwe

Abstract This paper provides a conceptual analysis of government debt servicing in Zimbabwe from 1980 to 2015. The mounting debt burden arising largely from nonconcessionary foreign loans since the 1980s, and the economic hardships that characterise the country beginning the late 1990s, caused dreadful public debt servicing challenges. Thus, the paper discusses the public debt service reforms and policies; trends; and problems in Zimbabwe over the review period. In the paper, it was identified that between 1983 and 1997, the government’s debt servicing costs were growing exponentially, resulting in liquidity challenges. However, between 1998 and 2015, the country had plunged into public debt service overhang, with public debt servicing liabilities exceeding the country’s foreign exchange earnings. Notwithstanding the various public debt servicing reforms to boost domestic revenues, Zimbabwe, as many other developing countries, still faces a number of debt servicing problems. Among others, these include: high government debt, low industrial and export competitiveness, narrow revenue base and subdued investor confidence. The paper recommends the government of Zimbabwe to undertake the following measures, among others, aimed at either boosting or expanding the revenue base: (i) improving tax enforcements; (ii) mobilising the informal sector; and (iii) expanding the productive capacity of public entities.

Redistributing under fiscal constraint: partisanship, debt, inequality and labour market regulation

AbstractLabour market regulation varies significantly, both within and between developed democracies. While there has been extensive research and debate in economics on the consequences of labour market regulation, the political causes for levels and changes in labour market regulation have received less scholarly attention. This article investigates a political economy explanation for differences in labour market regulation building on a theoretical argument that labour regulation can be used as a nonfiscal redistribution tool. Consequently, partisanship, the demand for redistribution and government budget constraint jointly determine whether labour market regulation will increase or decrease. Consistent with this argument, panel analyses from 33 Organisation for Economic Co-Operation and Development countries reveal that labour market regulation increases under left-wing governments that face increased market inequality and high government debt.

The Dynamics of Japanese Government Bondss Nominal Yields

This paper employs a Keynesian perspective to explain why Japanese government bonds' (JGBs) nominal yields have been low for more than two decades. It deploys several vector error correction (VEC) models to estimate long-term government bond yields. It shows that the low short-term interest rate, induced by the Bank of Japan's (BoJ) accommodative monetary policy, is mainly responsible for keeping long-term JGBs' nominal yields exceptionally low for a protracted period. The results also demonstrate that higher government debt and deficit ratios do not exert upward pressure on JGBs' nominal yields. These findings are relevant to ongoing policy debates in Japan and other advanced countries about government bond yields, fiscal sustainability, fiscal policy, functional finance, monetary policy, and financial stability.

The Reluctant Defaulter: A Tale of High Government Debt

We seek to account for the very high levels of public debt recently reached in many OECD countries. We do so by assuming that governments do their utmost to stave off default, which occurs only when a government fails to muster the funds needed for debt service. This distinguishes our work from existing work on sovereign debt, which has assumed that governments weigh the costs of debt service against those of default. The debt ratios we compute are quite close to prevailing levels: our baseline case has debt-to-GDP ratio slightly above 80%.