Public Debt Problem Research Articles

Analyzing the Threshold Impact of Public Debt on Economic Growth: an Investigation of the New Member States within the European Union

This paper aims to analyze the impact of public debt on economic growth in eleven EU new member states (NMS) from Central and South-Eastern Europe for the period 2000-2019. More specifically, we investigate if there is evidence of a non-linear (quadratic) relationship in this group of countries. Having in mind different economic and financial development, historical connections, and geographical proximity, we split them into three more homogenous groups: Balkan countries (BAL-4), Baltic countries (B-3), and Visegrad countries (VIS-4). The results of our study in all models indicate a statistically significant non-linear impact of public debt ratios on annual GDP per capita growth rates. The results across all models show a significant non-linear impact of public debt ratios on annual GDP per capita growth rates. Further, the calculated debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 42.7%-58% of GDP, dependent on which sub-group we have analyzed. In general, the research may contribute to a better understanding of the problem of high public debt and its effect on economic activity in the new EU.

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.

Soaring public debt: Return of financial repression and high inflation?

The global economic crisis caused by the COVID-19 pandemic has once again shown the key role of fiscal stimulus. At the same time, in many developed countries, stimulating monetary policy was limited by the already achieved zero interest rates. But the fight against the consequences of the coronavirus with fiscal policy instruments had a negative effect in the form of an increase in the state budget deficit and, as a result, in public debt. According to the Institute of International Finance (IMF), by the end of 2022, global debt reached $297 trillion, or 349%. The public debt in the world reached 102% of GDP in 2022, which is a historically high value since the 1960s. In 2023, global debt continued to grow in nominal terms: according to the IMF, in Q1 2023, it has already increased by $8.3 trillion to $305 trillion. The risks of rapid growth in public debt in developed and developing countries were even before the COVID-19 pandemic. But after a period of stimulus fiscal measures in 2020—2021 the public debt problem has worsened, raising fears that the practice of financial repression could become a reality for the next decade. Accelerating global inflation increases incentives for governments to use financial repression to eliminate the public debt burden. At the same time, financial repression, in turn, may imply a decrease in the effectiveness of the inflation targeting policy, as a result of which there are risks that high inflation will become more sustainable.

Vom starren Zentralismus zu Autonomie und Dezentralisierung nach europäischem Muster: kommunale Selbstverwaltung und lokale Finanzhoheit in Rumänien

The following article deals with local self-government in Romania and, in this context, focuses on questions of financial autonomy of local communities in Romania. A brief historical overview and a discussion of the legal concepts of local administrative autonomy and decentralization provide an in-depth look at aspects of financial law and an outlook on the field of financial autonomy. Budget planning and management, the components of local budgets and the problem of local public debt are discussed. The article is intended as an outline of the current legal situation in this area, which is primarily intended to familiarize a foreign readership with the Romanian regulation of the autonomy of local self-governments and their financial sovereignty.

Re-Analysis of the EU Public Debt Crises with NARX

This paper estimates the public debt of Southern EU countries by adapting the public debt law of motion equation, which includes the variables that represent the competitiveness of a country such as past public debt, GDP, primary balance, real exchange rate, real interest, and inflation, to Southern EU countries. The analysis is performed with the Non-linear Autoregressive Exogenous Artificial Neural Network, which is a dynamic and robust statistical method for the post-monetary union period consisting of quarterly data between 2005Q1 and 2021Q4. The results of the analysis reveal that the public debt in the Southern EU countries is robustly explained by the public debt law of motion equation with a confidence ratio of over 95%. This result implies that the public debt problem in Southern EU countries is associated with the competitiveness of these countries. In addition, the analysis goes beyond parametric analyzes that relate it to economic growth or a few variables in the estimation of public debt and uncovers the significance of inclusive variables and non-parametric analyzes included in the public debt law of motion equation in solving the problem.

Public debt, current account, and economic growth in Germany: Evidence from a nonlinear ARDL model

This paper investigated the public debt-growth nexus in Germany using a Nonlinear Autoregressive Distributed Lag (NARDL) model. We first review a history of the public debt problem in Germany from colonial times to the present. Since Germany had trading relationship with the rest of the world, the impact of such a relationship on economic growth is examined by including the current account (CA) as another explanatory variable in addition to public debt. We find that public debt and CA both have asymmetric impacts on the economic growth of Germany. Specifically, an increase in the level of public debt reduces economic growth while a decrease in public debt has no impact. In contrast, an increase in CA raises GDP by more than the increase in public debt-to-GDP ratio reduces GDP growth.

Re-analysis of the EU public debt crises with NARX

Purpose- This paper employs the public debt equation of motion, which covers variables that represent a country's competitiveness, such as past public debt, GDP, external balance, real exchange rate, real interest, and inflation, to estimate the public debt of Southern EU countries (Greece, Ireland, Italy, Portugal, and Spain). The paper is designed to test whether the public debt equation of motion (see Croce and Ramon, 2003; IMF, 2013; Chirwa and Odhiambo, 2018), which is characterized by significant variables representing competitiveness in macroeconomics, can statistically account for the public debt of Southern EU countries after the monetary union period including the EU public debt crisis. Consequently, based on the findings, it will be determined whether the competitiveness problems of Southern EU countries are important in the EU public debt crisis. Methodology- The analysis is performed with the nonlinear autoregressive network with exogenous inputs (NARX) with quarterly data for the period from 2005Q1 to 2021Q4. In NARX, which is a dynamic non-parametric neural network used in time series analysis, the prediction performance of the model is more robust than other neural network models, as the gradient descent approaches the local minimum perfectly (see Lin et al., 1996; Gao and Er, 2005; Diaconescu, 2008). However, it is important to define the parameters correctly in NARX to obtain effective results. In the study, parameters are defined according to the minimum Mean Squared Error values. The feedback Levenberg-Marquardt (LM) algorithm, which produces fast and effective results, is used as the training algorithm. The performance of the training algorithm for robustness is compared with testing and validation. Findings- The analysis results reveal that public debt in Southern EU countries is statistically explained by the public debt equation of motion with a confidence ratio of over 95%. Conclusion- This result implies that the public debt problem in Southern EU countries is associated with their competitiveness (see also Hall and Soskice, 2001; Dallago and Guglielmetti, 2011; Hall, 2012; Lane, 2012; Gros, 2012; Iversen et al., 2016; De Ville and Vermeiven, 2016; Frieden and Walter, 2017). In addition, the analysis goes beyond parametric analyzes that relate economic growth or a few variables with public debt and reveals the importance of inclusive variables and non-parametric analyzes in the estimation of public debt. Keywords: EU public debt crises, Southern EU countries, NARX, competitiveness problems JEL Codes: C45, F35, F45, N14, N24

ФІСКАЛЬНА СТІЙКІСТЬ ЯК ЕЛЕМЕНТ НАЦІОНАЛЬНОЇ ЕКОНОМІЧНОЇ БЕЗПЕКИ В УМОВАХ ГЕОПОЛІТИЧНИХ РИЗИКІВ

Fiscal sustainability is crucial for the overall economic security of a country. It means the ability of the government to meet its financial obligations in the long run without relying on excessive borrowing and without resorting to inflationary policies. The purpose is to explore the key challenges to strengthening fiscal sustainability as an element of national economic security in the face of new geopolitical risks. Global economic crises, such as the 2008 financial crisis, the coronavirus pandemic, the war in Ukraine, crisis events in the banking sector in March 2023 can also affect fiscal sustainability. Economic crises can lead to a decline in demand for goods and services, lower tax revenues, and increased government spending on social programs such as unemployment benefits. This can lead to an increase in public debt and budget deficits. High levels of public debt also increase the risk that the government will default on its obligations, which could undermine investor confidence and increase borrowing costs. This can further exacerbate the problem of high public debt, as the government may have to devote even more resources to servicing this debt. According to the concept of "debt rejection" for developing countries, as a rule, there is a "lack of freedom" regarding the regulation of the debt level, although it is managed using the most modern methods. Identifying the determining factors for a specific country, highlighting the threshold of "rejection" of debt is a basic approach to debt management, in particular, its restructuring, determining an acceptable level of debt, using international lending to mitigate fiscal shocks and accelerate growth. To address the problem of high public debt, governments can implement measures such as spending cuts, raising revenues through taxation, or implementing structural reforms to improve economic growth. However, these measures can be difficult to implement as they may require difficult choices and sacrifices. Nevertheless, addressing high public debt is important for achieving fiscal sustainability and promoting national economic security.

Current state and prospects of resolution of public external debt problem in Russia

The article provides a comprehensive analysis of public external debt problem in Russia in period of 1991–2021. The author highlights and characterizes five stages of the debt problem development. A distinctive feature of the current stage (2014 — present) is the presence of sanctions risk, which remains one of the most important factor of the Russian loan portfolio. The narrowing of opportunities for Russian public debt is likely to increase Russia’s dependence on domestic financing which is already high. It is established that external corporate debt has been determining the dynamics and volume of Russian external debt since the mid-2000s. It is revealed that from the point of view of debt sustainability of country, Russian economy is in more favourable position than many developed countries in the grip of debt crisis. However, there are risks to the country’s external debt sustainability, and they lie in the corporate sector. Special attention is paid to the fact that a significant part of corporate debt is formed by the debt of quasi-sovereign organizations. At the end of the article, a plan on replacement of external sources of loans with domestic ones is proposed. During implementation of this plan, it is necessary to take into account that the loans from companies and banks from classic offshores and from countries involved in offshore financial schemes form a significant part of corporate debt. Consequently, these may be ordinary intra-corporate financial transactions, and the real corporate external debt is much lower and requires less financial resources to settle it.

HOW FAR FISCAL DOMINANCE MATTERS FOR A DEVELOPING ECONOMY

Abstract. The growing public debt that intensifies with a frequency of economic crises grasps a high rating in the current economic debates. There is an urgent need for implementing an effective policy regime targeted at handling the public debt problem. The fiscal dominance policy, usually practiced to ensure strong recovery and growth, has a strict guideline for identifying a degree of fiscal expansion and monetary accommodation. Given a dilemma between growth and debt burden, the government should mobilize the most effective policy instrument targeted at the highest fiscal multiplier and does not cross a debt-to-GDP threshold ratio. Following an effective practice of fiscal management, this instrument is associated with public investment. The paper aims to assess the magnitude of the public investment multiplier by following a stable growth path limited by a prescribed debt limitation for a developing economy. To achieve the goal, we use an elaborated New Keynesian model, which besides an active fiscal and monetary stances, also includes a high share of non-Ricardian households, the separability in preferences between private and government consumption, a low level of public investment efficiency, and the substantiated degree of nominal and real rigidities. The obtained present value cumulative output multiplier for public investment grasps the point 2.0 in maximum over two years of the impulse response function. The multiplier effect proves to be high enough to offset temporary public debt growth and maintain a sustainable growth path over the long run. The verified measure of fiscal dominance contradicts an active monetary stance and, among other things, has to be counterbalanced by an appropriate efficiency and productivity of public investment and degree of price stickiness. Keywords: fiscal policy, monetary policy, fiscal-monetary interaction, fiscal dominance, fiscal multiplier, DSGE modeling. JEL Classification O47, E63, H63, D58 Formulas: 1; fig.: 2; tabl.: 0; bibl.: 21.

Public Debt and Economic Growth in the European Union. Empirical Investigation

The relatively high sizes of public debts in many of the world's member states have led to frequentdebates concerning the influence of public debt on economic growth. Analyzing economic literature it can beseen, that theoretical and empirical considerations on this topic are divided into three main parties. The firstpart of analyzes is the work of the Keynesians, which emphasizes that the budget deficit as well as the publicdebt positively affects the economic development of the country, mainly through the impact of the budgetexpenditure multiplier. The opposite view on budget deficits and public debt is represented by the neoclassicalschool, who argue that the budget deficit and public debt can have negative impact on economic growth.Conversely, proponents of the Ricardian equivalence concept believe that budget deficits and public debt areneutral for economic growth. These three mentioned above approaches to the budget deficit and public debtproblem have led to many debates at home and abroad about the importance of budget deficit and public debt inthe process of economic growth and economic development of the country. The main objective of the study isto determine the impact of the foreign debt and home debt on economic activity of the country, based on theexample of the 27 member countries of the European Union (without United Kingdom) in the period 2006-2017. The statistics came from the European Statistical Office (Eurostat) and International Monetary Funddatabase (World Economic Outlook).

ПРОБЛЕМА ЗОВНІШНЬОЇ ЗАБОРГОВАНОСТІ У КРАЇНАХ ЄС

This article provides the review of the problem of external debt of the countries of the European Union. Modern forms of external borrowing are considered, as well as the reasons for the external debt of countries in general and the reasons that became the beginning of the debt crisis for the EU countries. The article provides the main theoretical options for overcoming this problem, both in the form of measures to overcome the problem of external debt, common ways to overcome the problem of public debt, and in the form of the main policy directions to overcome this problem. The data show a deterioration of the EU's position in the international arena, as well as the emergence of debt economic problems of the European Union, which adversely affects the overall situation in the world.The public debts of Greece, Spain, Ireland and Portugal need to be refinanced, measures need to be taken to improve the situation, but over the years the external debts of the countries do not tend to decrease, which has a negative impact on total external debt, a possible external debt crisis.The article also provides data and statistics on the EU external debt for the period 2013-2019, the ranking among the EU countries with the largest external debt and its amounts, the structure of the external public debt of the EU for the period 2017 - 2019. This article also discusses the main consequences of accumulation of external debt.

State debt management in the context of Ukraine's economic development

The paper explores the theoretical and methodological basis of the concept of public debt management. The relationship between the problem of public debt and economic development of the country has been revealed. The dynamics of Ukraine's public debt for the period 2010-2019 have been analyzed. The default as a means of state debt policy has been investigated and its main economic consequences are presented. The international experience of managing public debt on the example of Argentina has been analyzed. The economic essence of technical default has been defined and the concept of technical default as a priority direction of Ukraine's state debt policy in the current conditions has been proposed. Public debt is a set of State commitments to internal and external creditors. State debt Management provides for state creation of the concept of debt policy. In economic terms, the main task of debt management is to maintain the level of public debt on a moderate level. In Ukraine, the problem of state indebtedness is particularly relevant after 2014. However, the most acute this problem was at the beginning of 2020 with the beginning of the recession economy and raising the deficit of the State budget. There are three main strategies to address public debt: investing in the country's economic development and timely repayment of liabilities, default and technical default. The strategy of investing in the country's economic development envisages emission of money or additional involvement in order to stimulate economic development, as well as timely payment of debts and interests. This strategy is appropriate in terms of relatively small amounts of public debt. Defaulted involves declaring the state insolvency payment obligations to creditors. Defaulted in the short run means a rapid deterioration in the economic situation in the country, but under certain conditions, there may be positive consequences in the long run. The technical default means the state's inability to pay debts on a certain date if there is a possibility of their payment in the future. In Ukraine today, the optimal decision of the state debt policy is the proclamation of technical default to restructure debts and prevent aggravation of socio-economic crisis in the country.

Italy grapples with its public debt: A dog chasing its tail

ABSTRACTThe article reviews Italy’s fiscal policy over 2019-2020. Notwithstanding the fact that two different coalitions have been responsible for the budget law over the period and conducted two alternative fiscal strategies, they have both failed to tackle the public-debt problem. They have done so not only in practice with debt to GDP figures showing no significant progress, but also in the political narrative paying little attention to the need to reduce the debt burden weighing on future generations. Looking ahead, the repeated breach of EU debt rules poses a challenge that is both domestic and international, unless EU rules are significantly reformed.

Formation and regulation of public debt problems in Ukraine in the context of debt security

The article is devoted to the study of current features and trends in public debt formation in Ukraine and on this basis reasoning recommendations for resolving public debt problems in the context of debt security. The indicators of the dynamics and structure of the domestic and external public debt of Ukraine are analyzed, the level of the state's solvency in terms of official foreign exchange reserves are assessed. The risks that cause uncertainty of further prospects for the development of the situation in the field of public debt of Ukraine have been identified. Taking into account the international experience of public debt management and ensuring financial security, the main areas for improving the debt policy in Ukraine are outlined.

Проблема задолженности населения за жилищно-коммунальные услуги как одна из современных проблем в сфере ЖКХ

Проблема задолженности населения за жилищно-коммунальные услуги как одна из современных проблем в сфере ЖКХ

Dealing with Egypt Public Debt Accumulation Problem

This paper examines the public debt problem in Egypt, and provides new supportive and non-stereotyped ideas that could help to put public debt on a downturn and a sustainable pass. The analytical approach was used to identify the magnitude of the public debt problem through analyzing the debt structure, the increase in interest payments, and private investment crowding out. The study also evaluates the impact of the economic reform problem on the debt to GDP level; in addition to analyzing the implications of the government plan on debt structure and its associated risks. Some of these risks are: the unsustainability of GDP growth and its structure, debt roll over risk, and the risk of materializing contingent liabilities. Furthermore, this paper proposes new ideas; besides, the usual concentration on fiscal consolidation and stable economic growth to decrease the Egyptian public debt. Improving tax collection, developing government securities market, using the appropriate economic policy mix, applying zero interest rate on the government liabilities to the Central bank of Egypt, and swapping debt with equity, are some non-stereotyped ideas that could help in reducing the public debt of Egypt.

Fiscal Stimuli and Consolidation in Emerging Market Economies

The Great Recession has imposed vital limitations on the policy maker’s ability to react to further economic challenges. In this article, the authors set a purpose to assess the expediency and the size of fiscal consolidation or expansionary measures for countries with emerging markets depending on economic dynamics. The data on the episodes of large changes in fiscal policy, representing both fiscal stimuli and consolidation in Ukraine and in the EU countries with emerging market economies from 2001 to 2017, were evaluated. The authors examined the main reasons of fiscal policy’s volatility and its impact on economic growth. The countries with low and medium level of institutional framework for fiscal policy formulation could face permanent deficit and public debt problem. Episodes of expansionary fiscal adjustments based on government revenues cuts and spending increases were more effective compared with those that were entirely based on spending increases. Empirical investigation showed that successful fiscal consolidation measures obligatory included the government primary spending reduction. In those cases, the budget deficit-to-GDP and public debt-to-GDP ratios were declined. Medium-term priorities to develop the methodical bases of fiscal policy design were justified.

Fiscal stimuli and consolidation in emerging market economies

The Great Recession has imposed vital limitations on the policy maker’s ability to react to further economic challenges. In this article, the authors set a purpose to assess the expediency and the size of fiscal consolidation or expansionary measures for countries with emerging markets depending on economic dynamics. The data on the episodes of large changes in fiscal policy, representing both fiscal stimuli and consolidation in Ukraine and in the EU countries with emerging market economies from 2001 to 2017, were evaluated. The authors examined the main reasons of fiscal policy’s volatility and its impact on economic growth. The countries with low and medium level of institutional framework for fiscal policy formulation could face permanent deficit and public debt problem. Episodes of expansionary fiscal adjustments based on government revenues cuts and spending increases were more effective compared with those that were entirely based on spending increases. Empirical investigation showed that successful fiscal consolidation measures obligatory included the government primary spending reduction. In those cases, the budget deficit-to-GDP and public debt-to-GDP ratios were declined. Medium-term priorities to develop the methodical bases of fiscal policy design were justified.

Financial repression policy: Latin America and Spain’s lessons for Russia

Global financial crisis that in 2008 struck the economy and revealed many structural problems for the first time after the Great Recession had developed countries with high debt level at its core. The world’s richest economies such as Spain, Italy, Portugal, United States, the UK and Japan found themselves at the brink of default. Meanwhile emerging markets remain a volatile area with high fluctuations in portfolio investment. Lower economic growth rate in Argentina, Chile, Colombia, Brazil or México caused by a slump in commodity prices created a hole in national budgets. Therefore, within a framework of nonconventional monetary policy both developed and emerging nations resorted to measures of financial repression between 2009 and 2014 to alleviate public debt problem and generate additional revenue for the government. However, recent studies dedicated to the phenomenon ambiguously assess the role of financial repression in achieving more efficient results of internal regulation. This article contributes to further quantitative analysis of a joint effect of financial repression measures. The purpose of the study is to identify macroeconomic consequences of the policy on the growth rate of GDP and its components.