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This study contributes to the ongoing reform of the EU's economic governance, particularly about fiscal performance. We opt for a fiscal reaction function of the cyclically adjusted primary balance. Given concerns over underlying endogeneity and heterogeneity across countries we employ a threshold dynamic analysis. The findings confirm that the fiscal policy in the EU has been procyclical overall. However, we identify two regimes of output gap. Fiscal policy has been countercyclical for EU member states in the higher output gap regime while EU member states follow a procyclical fiscal policy in the lower regime. We reveal also that the endogenous debt‐to‐GDP ratio threshold is at 75.6% for the EU and 78.7% for the Euro area, which notably exceeds the EU Treaty's reference value of 60%. Fiscal rules and fiscal councils mitigate procyclical fiscal policies, being more effective for low debt countries. In terms of policy implications, the identified fiscal thresholds and variability across countries warrant a higher degree of fiscal coordination in the EU, particularly in the Euro area. [ABSTRACT FROM AUTHOR]

The average country in Asia–Pacific experiences more natural disasters than average countries of other developing regions. This paper presents stylized facts on natural disasters, human development, and external debt in Asia–Pacific. The paper also contains estimates of the effects that natural disasters have on human development. Controlling for country- and time-fixed effects, the dynamic panel model estimates show that external debt has a mitigating effect on the adverse impacts that natural disasters have on human development; in countries with low external debt-to-GDP ratios, natural disasters significantly decrease the human development index, but not so in countries with high external debt-to-GDP ratios. External debt (i.e., borrowing from abroad) is a financial contract for obtaining resources from abroad (i.e., imports of goods and services). When a country experiencing a natural disaster borrows from abroad to increase imports of goods and services, the population suffers less when a natural disaster strikes. Natural disasters destroy goods and capital (e.g., food, machinery, buildings, and roads) in the countries in which they occur. If imports of goods and services do not increase, then the population has less goods and services to consume following a natural disaster. By increasing imports, which are mirrored on the financial side by an increase in external debt, the population of a country that was struck by a natural disaster can experience consumption smoothing. As the incidence of natural disasters increases globally, a policy recommendation for disaster-prone countries, supported by the empirical results of this paper, is the need for deeper and innovative mechanisms of access to international financing, including reforms in both domestic and international financial systems. The paper's most significant contribution is the unique lens through which it analyzes the often-studied subject of natural disasters. Rather than looking at disasters as merely adverse events and debt as an unwelcome obligation in isolation, it connects the two and uncovers the paradoxically positive and beneficial role a healthy level of external debt can play in mitigating the adverse effects of these disasters. It provides a fresh perspective, a shift in thinking that may immensely benefit external debt and disaster management policies. [ABSTRACT FROM AUTHOR]

Consider a model of debt management, where a sovereign state trades some bonds to service the debt with a pool of risk-neutral competitive foreign investors. At each time, the government decides which fraction of the gross domestic product (GDP) should be used to repay the debt, and how much to devaluate its currency. Both these operations have the effect to reduce the actual size of the debt, but have a social cost in terms of welfare sustainability. When the debt-to-GDP ratio reaches a given size $ x^* $, bankruptcy instantly occurs. Moreover, at any time the sovereign state can declare bankruptcy by paying a correspondent bankruptcy cost. To offset the possible loss of part of their investment, the foreign investors buy bonds at a discounted price which is not given a priori. This leads to a nonstandard optimal control problem. For a given bankruptcy threshold $ x^* $, we show that the optimization problem admits an equilibrium solution. The paper also studies properties of optimal feedback strategies, and the asymptotic behaviour of the expected total cost to the borrower as $ x^* $ is pushed to infinity. [ABSTRACT FROM AUTHOR]

This article assesses the dilemma that most governments face when seeking to ensure the sustainability of their public finances through economic growth while simultaneously protecting the environment. We propose a growth model in which the government finances abatement-spending through taxation or public debt and which follows a fiscal rule that targets the long-run debt-to-GDP ratio. We show that there is a threshold for the debt ratio below which debt and environmental sustainability are secured. In steady state, the debt ratio exerts a nonlinear effect on environmental quality in the form of an inverted U-shaped curve, and the environmental tax is good for the environment when public debt is not. A fiscal rule authorizing a small but strictly positive debt ratio could help the government to implement adaptation policies for environmental protection while supporting long-run economic growth. [ABSTRACT FROM AUTHOR]

This study presents evidence of global and regional comovements in public debt and examines their trends and features. We employ a Bayesian dynamic factor model with time‐varying parameters based on the debt‐to‐GDP ratio of 115 countries. We find the global factor accounts for 38 percent of the total variation in the debt ratio worldwide, but its share decreases over time. Countries with more financial openness and a greater share of external public debt are more exposed to global/regional comovements. The assertion that international financial integration encourages higher government borrowing applies primarily to high‐income countries and it does not hold globally. [ABSTRACT FROM AUTHOR]

Purpose: This study focuses on the banking systems evaluation in Portugal, Italy, Ireland, Greece and Spain (known as the PIIGS) during the financial and post-financial crisis period from 2009 to 2018. Design/methodology/approach: A conditional robust nonparametric frontier analysis (order-m estimators) is used to measure banking efficiency combined with variables highlighting the effects of Non-Performing Loans. Next, a truncated regression is used to examine if institutional, macroeconomic, and financial variables affect bank performance differently. Unlike earlier studies, we use the Corruption Perception Index (CPI) as an institutional variable that affects banking sector efficiency. Findings: This research shows that the PIIGS crisis affects each bank/country differently due to their various efficiency levels. Most of the study variables — CPI, government debt to GDP ratio, inflation, bank size — significantly affect banking efficiency measures. Originality/value: The contribution of this article to the relevant banking literature is two-fold. First, it analyses the efficiency of the PIIGS banking system from 2009 to 2018, focusing on NPLs. Second, this is the first empirical study to use probabilistic frontier analysis (order-m estimators) to evaluate PIIGS banking systems. [ABSTRACT FROM AUTHOR]

The article considers the ways to adapt fiscal rules in the postpandemic period in the Republic of Armenia, taking into account the new challenges associated with the geopolitical situation. The effectiveness of existing fiscal rules during the crisis is assessed, taking into account their impact on economic recovery, fiscal sustainability, and overall economic well-being. Through a comprehensive analysis of different configurations of fiscal rules, the authors attempt to determine the balance between flexibility and discipline in fiscal policy in the postcrisis period. The study examines the trade-offs between easing fiscal rules to achieve short-term recovery growth goals and maintaining stricter rules to ensure long-term fiscal stability. [ABSTRACT FROM AUTHOR]

Existing literature suggests that fiscal space matters for the policy response to financial crises. High public debt levels limit countries capacity to pursue macroeconomic and financial stabilization policies and resume growth after severe crisis downturns. We examine the involved channels through which fiscal space matters for the dynamics of fiscal policy after a financial distress, namely sovereign market access and policymakers' views, in a panel of 30 OECD countries for the period 1980–2017. We introduce a non-linear measure of fiscal space, which further considers simultaneously both the debt-to-GDP ratio capturing long-term features of countries' policy-making processes and budgetary balances that capture recent policy decisions and persistent fiscal deficits. We document a substantially strengthened role for sovereign market access constraints in driving the policy response to distress once fiscal space non-linearity is introduced in the model, which highlights the non-linearity involved in market participants' concerns about fiscal space. Moreover, the vulnerability of market access concerning fiscal space is affected by either the debt-to-GDP ratio or fiscal balances dominating the assessment of fiscal space. The role of fiscal health and the policymakers' views channel is more pronounced once flows of budget deficits are at the epicenter of the assessment of fiscal space, suggesting a "deficit concerns" channel. [ABSTRACT FROM AUTHOR]

The debt-to-GDP ratio negatively predicts cumulative nominal consumption growth up to a 10-year horizon, resulting from the ratio's ability to forecast lower inflation and real growth. Moreover, the debt-to-GDP ratio is positively associated with yield spreads. I rationalize these facts in a model in which positive shocks to government debt cause lower inflation and growth, making bonds attractive assets. Furthermore, because longer-term bonds are less exposed to current debt shock than are shorter-term bonds, they are better hedges, resulting in high yield spreads in high-debt states. The model highlights the importance of fiscal risk in understanding the Treasury bond market. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

AbstractThis paper aimed to examine the empirical analysis of currency devaluation, external debt to GDP growth rate and output growth dynamics in Ethiopia. To achieve this objective, time series data covering from 1991 to 2022 was used and it was examined using an Auto Regressive Distributed Lag (ARDL) model. The estimation results show that devaluation, the external debt-to-GDP growth rate, and economic growth are all significantly correlated and are co-integrated in the long run. This study found that devaluation has positive long-run effect on output growth, while the external debt-to-GDP growth rate has negative long-run effects on output growth. In addition, the results revealed that inflation had positive effects on economic growth both in the short and long run, while, private investment had negative effects on economic growth both in the short and long run respectively. In general, the study found that there is no short-run connection between devaluation, the external debt-to-GDP growth rate, and economic growth; nevertheless, in the long run, devaluation lowers external debt by boosting exports and promoting economic growth. Additionally, long-run economic growth in the country is positively impacted by spending on education and the availability of real money supply. This study suggests that the government should improve economic growth by enhancing allocation for education to improve its quality, control inflation and money supply, and promoting devaluation to check their effects on the economy.

Public debt management plays a pivotal role in ensuring fiscal stability and fostering economic growth, particularly amidst unprecedented challenges like the COVID-19 pandemic and energy crises. The main aim of this study is to provide accurate projections for public debt, offering valuable insights to guide sustainable debt management practices. Utilizing historical data from the Republic of Moldova spanning the period 2003-2023, the study employs the Monte Carlo simulation method to construct a fan chart. This chart presents a probability distribution of the general government debt-to-GDP ratio for the Republic of Moldova during 2023-2027. By generating multiple alternative scenarios for real GDP growth, real interest rates, and primary balances, policymakers can gain a comprehensive understanding of future debt trajectories and the potential impacts of various policy decisions. These projections are essential tools to facilitate informed decision-making and promote effective debt management strategies in the face of economic uncertainties and challenges. [ABSTRACT FROM AUTHOR]

This study utilizes panel data from 125 countries spanning 2005–2015 to empirically examine the impact of government debt on country-level subjective well-being. The fixed effect model results show that an increase in the government debt-to-GDP ratio significantly reduces subjective well-being in countries with low governance quality. However, this negative effect of government debt on happiness is substantially offset in countries exhibiting governance quality above the median value. The main result is robust to controlling for various sources of government debt. Moreover, we find that under certain conditions, such as high levels of government effectiveness, rule of law, or strong control of corruption, an increase in government debt is positively associated with people's subjective well-being. In addition, the positive effect of government debt on country-level happiness is also observed in high-income countries with high governance quality. Our results suggest that it is not government debt itself that influences citizens' happiness levels, but rather how this debt is managed and the degree of trust citizens place in their government. [ABSTRACT FROM AUTHOR]

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This study presents an overlapping generations model to analyze the impact of population aging on fiscal policy and intergenerational fiscal burden. Aging populations incentivize governments to increase capital and labor income tax rates and the public debt‐to‐GDP ratio, consistent with OECD evidence. Our model‐based simulation for Japan and the United States (2000–2070) reveals that Japan will experience higher labor income tax rates, a greater public debt‐to‐GDP ratio, and a lower government expenditure‐to‐GDP ratio compared to the United States. From 2040 onward, Japan is predicted to surpass the United States in terms of the capital tax rate. [ABSTRACT FROM AUTHOR]

Following the European Debt Crisis, there was a significant push for greater fiscal discipline across the EU member states. This began with the revitalization of the Stability and Growth Pact in 2011 and continued with the adoption of the Fiscal Stability Treaty of 2013. The measures were designed to maintain or achieve both government debt-to-GDP ratios of below 60% and government budget deficits of below 3%. This paper investigates whether the fiscal discipline measures had an impact on the relationship between fiscal and current account balances. Using the synthetic control method, we examine current account balances in each EU member state that implemented the fiscal provisions in the treaty (Title III), compared to a synthetic counterfactual economy. We find that countries most impacted by the European Debt Crisis experienced the greatest improvement in their current account deficits from the fiscal discipline measures. Several other EU member states also experienced stabilization in their current account balances compared to their synthetic counterfactuals. [ABSTRACT FROM AUTHOR]

The devastating effects of the financial and economic recessions within the last two decades have led researchers to question whether there is a connection between the public and private financial sectors that contributes to the rapid propagation of crisis. We analyze the fractional cointegrating structure between the private and public debt-to-GDP ratios for 17 European countries to examine the relevance of this relationship as an amplification channel of shocks. On the one hand, the univariate fractional integration approach reveals that shocks have permanent effects on financial variables in all the countries considered. On the other hand, we find that the number of countries for which private and public debt are cointegrated increase after the Great Recession. [ABSTRACT FROM AUTHOR]

Pakistan's reliance on foreign debt has been a major concern for policymakers and economists for many years. The country's debt-to-GDP ratio has increased significantly in recent years, raising questions about the sustainability of the country's debt burden and its implications for economic growth and development. The research begins by providing an overview of the role of foreign debts in financing Pakistan's developmental needs and meeting its budgetary requirements. It then examines the foreign debts taken by the last three governments and analyzes the implications of foreign debts on the country's economy, fiscal policies, and external relations. Nexus to the phenomena, the data was collected on twelve development indicators of World bank which include consumer price index/inflation, external debt stock, annual GDP growth, government consumption expenditure, households' consumption (percentage of GDP), official exchange rate, total debt service and trade (percentage of GDP). The research discusses the best practices for managing foreign debts and provides recommendations for minimizing our dependence on foreign debts. These recommendations include develop long term debt management strategy (Lowering borrowing costs, Enhancing debt sustainability Strengthening investor confidence, Promoting transparency and Supporting economic growth), Diversify funding sources, Focusing on economic growth (by increasing exports, Improved creditworthiness, Attraction of foreign investment, Enhanced debt servicing capacity and Reduced reliance on foreign borrowing), Improve debt sustainability analysis (by Identifying risks, Setting debt limits, Developing debt management strategies and Providing early warning signs), Strengthen debt management capacity (by Developing human resource, Better coordination with other government agencies, Improved debt data management and Developing a robust legal and institutional framework), promoting foreign direct investment, enhancing tax collection, reducing non-development expenditures, and improving the efficiency of public sector organizations. Moreover, this research also suggests the establishment of an independent Debt Management Office to ensure the prudent management of foreign debts. Overall, this research provides valuable insights and recommendations for senior management professionals in Pakistan to address the issue of our dependence on foreign debts. [ABSTRACT FROM AUTHOR]

This study examined the threshold effect of debt on economic growth in Nigeria, with a view to investigating debt sustainability levels in the country. The analysis included yearly data from 1981 to 2021. To achieve its objectives, the study used two-regime threshold ARDL regression approaches. Findings reveal that the optimal thresholds for total debt as a ratio of GDP (TDB/GDP), GNI (TDB/GNI), total revenue (TDB/REV), and exports of goods and services (TDB/EXP) are 46.1%, 54.5%, 355.3%, and 24.9%, respectively. Findings also indicate that debt ratios below the threshold levels have a significant positive impact on economic growth. This is true for all the debt ratios, except debt-to-export ratio. However, debt ratios above the threshold levels have a negative and significant effect on Nigeria's economic growth. Furthermore, findings reveal that only the level of domestic debt is sustainable over the long and short run, whereas external debt and total debt are only sustainable over the long run. When expressed as ratios of GDP and GNI, evidence indicates that Nigeria's debt is not sustainable by all the five measures of debt adopted in the study, both in the short run and in the long run while total debt to revenue ratio is only sustainable only in the long run. The paper adequately explores the implications of these findings and offers relevant policy recommendations. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

We investigate the bilateral relationship between government budget balances and current account balances for Germany and Portugal. We find that the response of the current account balance to the budget balance is greater in Portugal than in Germany. On the other hand, the response of the budget balance to the current balance is higher in Germany than in Portugal. In Germany and Portugal, a fiscal rules index has a negative impact on the current account balance and the government effectiveness index has a positive impact on the government balance. The public debt-to-GDP ratio positively affects the current account balance in Portugal while the output gap has a negative influence, and that is not the case in Germany. During the period of implementation of the external assistance programme in Portugal, the current account balance improved, while the government balance did not. Finally, Germany's output gap positively influences Portugal's fiscal position. [ABSTRACT FROM AUTHOR]

The aim of the article is to examine the post-war national economy, notably overburdened with significant war expenditures and the effects of sovereign debt restructuring in a wartime period. The research uses system dynamics modelling methods, operates with S-shaped growth, overshoot and collapse dynamic patterns. The oscillation patterns of behaviour have been used to demonstrate the scenario options of possible external debt minimization. The dynamic hypothesis about non-linear behaviour of post-war debt trajectory has revealed the intrinsic growth rate in debt-dependent economy and the inflection point of no return to stable economic growth without radical decision of sovereign debt cancellation. The direct consequence of a negative solution for debt cancellation would be the unpredictable, even chaotic fluctuations of national economic growth rate. Baseline simulation to prove the results of research has been provided. The embedded “dependent-economy” type of macrostructure does not allow to overcome the critical debt overhang level and needs a new national model with appropriate policy to stabilize the economy. Performance of post-war debt repayment depends mostly on an innovative fund, which can be created by export abilities in the framework of post-war recovery plan. The results of the research may be applied by national authorities responsible for macroeconomic debt policy. The obtained results of the study allow us to draw a conclusion about the impossibility of developing the national economy within the framework of the existing economic structure of the developing country. The debt trap, which cannot be eliminated, does not allow to develop the national innovative economy and ensure economic growth and development.

With this paper, our objective is to empirically study public debt sustainability by estimating a fiscal reaction function where the primary balance relative to GDP is assumed to be a function of the public debt to GDP ratio of the previous year and of other macroeconomic variables. In particular, we take into account the effects of the lagged real long term interest rate and of the lagged inflation rate on the primary budget of the governments to account for monetary policy influences. We resort to the fixed effects and to the random effects models for a panel of 12 euro area economies from 1996 to 2020. We find statistical evidence for sustainable debt policies and detect that both monetary policy variables are positively correlated with the primary balance to GDP ratio. This holds both for the fixed and for the random effects estimation, when those variables are included simultaneously. [ABSTRACT FROM AUTHOR]

This paper assesses the possible development of government interest expenditures for Germany, France, Italy and Spain. Until 2021, governments could anticipate a substantial further reduction in interest expenditure. This outlook has changed drastically with the surge in inflation and government bond rates. Assuming that bond rates remain at the levels implied by yield curves from December 2022, interest expenditure rises substantially. We also examined scenarios with a further upward shift in yield curves by one or two percentage points. They indicate major medium‐term risks for highly indebted member states with interest expenditure approaching or exceeding levels last observed on the eve of the euro area debt crisis. Governments should take action to achieve a decline in debt‐to‐GDP ratios towards safe levels. They need to make sure public debt remains sustainable at the higher interest rates that are required to achieve price stability in the euro area. [ABSTRACT FROM AUTHOR]

This study contributes to understanding the supply mechanism of household loan portfolios in Korea, where the ratio of household debt to GDP is high. This study conducted an empirical analysis of how banks' financial characteristics including capital adequacy, financial soundness, and profitability affect banks' supply of variable‐rate household loans that are sensitive to increases in the central bank's base interest rate and have higher possibility of loan default, considering time lag in terms of banks' risk‐taking behaviour. The main results suggest that the proportion and change of variable‐rate loans are significantly affected by the level and change of financial characteristics. In particular, a high level of capital adequacy enabled banks to supply risky loans by increasing their risk tolerance. [ABSTRACT FROM AUTHOR]

This paper uses the difference-in-differences method and the synthetic control method (SCM) to estimate the effect of adopting numerical fiscal rules on the debt-to-GDP ratio of CFA zone countries. Using the SCM addresses the self-selection bias issue that has plagued previous studies on the impact of fiscal rules. The SCM compares the post-treatment trajectory of the treated CFA zone countries to that of a counterfactual constructed using similar but untreated donor countries. Our results show that, overall, adopting a stringent numerical debt rule is associated with a statistically significant decrease in the level of debt for CFA zone countries. The effect is stronger for West African CFA zone countries, suggesting that enforcement mechanisms and strong institutions are the key determinants of the de facto effectiveness of fiscal rules. [ABSTRACT FROM AUTHOR]

Safe asset shortages can expose an economy to liquidity traps. The nature of these traps is determined by the cyclicality of the bond premium. A counter-cyclical bond premium opens the possibility of expectations-driven liquidity traps in which small issuances of government debt crowd out private debt and reduce output. In contrast, when the bond premium is pro-cyclical and the economy is in a liquidity trap, government debt is expansionary. In the data, we find evidence of a counter-cyclical bond premium. Large interventions can prevent the emergence of self-fulfilling traps, but they require sufficient fiscal capacity. In a quantitative model calibrated to the Great Recession, a promise to increase the government debt-to-GDP ratio by 20 percentage points precludes the possibility of self-fulfilling traps. [ABSTRACT FROM AUTHOR]

As a matter of arithmetic, the trends of US government debt and deficits will eventually result in an outrageously high government debt-to-GDP ratio. But when exactly will the United States hit the constraint of infeasibility and how exactly will policy adjust to it? This article considers fiscal dominance, which is the possibility that accumulating government debt and deficits can produce increases in inflation that “dominate” central bank intentions to keep inflation low. Is it a serious possibility for the United States in the near future? And how might various policies change (especially those related to the banking system) if fiscal dominance became a reality?. [ABSTRACT FROM AUTHOR]

We construct a continuous‐time overlapping generations model with an endogenous growth structure and consider fiscal sustainability under two fiscal rules: (i) the government fixes the budget deficit‐to‐GDP ratio and (ii) the government fixes the primary balance‐to‐GDP ratio. Under the constant budget deficit‐to‐GDP rule, fiscal sustainability is ensured when the initial public debt‐to‐GDP and budget deficit‐to‐GDP ratios are sufficiently small. Under the constant primary balance‐to‐GDP rule, it is difficult to ensure fiscal sustainability when the primary balance is in deficit or zero. However, fiscal sustainability is ensured when the primary balance is in surplus and the initial government debt‐to‐GDP ratio is sufficiently small. [ABSTRACT FROM AUTHOR]

This article studies whether debt renegotiation mitigates debt overhang and increases corporate investment. Using mergers between lenders participating in the same syndicated loans as natural experiments that reduce the number of lenders and thus make renegotiation easier, I find that the firms affected by the mergers become more likely to renegotiate the loans and increase capital investment. The effect is stronger for firms with higher Q and firms in financial distress, supporting the hypothesis that the lender mergers mitigate the debt-overhang problem. [ABSTRACT FROM AUTHOR]

Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola, and Zika) have been followed by increases in inequality [ Furceri et al. (2020) , COVID Economics , 12, 138–157]. In this article, we show that the extent of fiscal consolidation in the years following the onset of these pandemics has played an important role in determining the extent of the increase in inequality. Episodes marked by extreme austerity—measured using either the government's fiscal balance, health expenditures, or redistribution—have been associated with an increase in the Gini measure of inequality three times as large as in episodes where fiscal policy has been more supportive. We survey the evidence thus far on the distributional impacts of the COVID-19 pandemic, which suggests that inequality is likely to increase in the absence of strong policy actions. We review the case made by many observers [ IMF (2020) , Fiscal Monitor ; Stiglitz (2020) , Finance & Development , Fall 2020; Sandbu (2020b), Financial Times , 26 November 2020)] that fiscal support should not be withdrawn prematurely despite understandable concerns about high public debt-to-GDP ratios. [ABSTRACT FROM AUTHOR]

We assess the consequences of fiscal consolidation episodes on public sector efficiency (scores) for 35 OECD countries for the 2007–2020 period. We find that fiscal consolidations improve public sector efficiency and results are robust across efficiency models. Moreover, peripheral euro-area economies and economies with debt-to-GDP ratios between 60% and 90% are those whose public sector efficiency scores improve more when fiscal consolidation episodes occur. The evidence that fiscal consolidations enhance spending efficiency is an additional argument for fiscal consolidations, from a policy perspective. [ABSTRACT FROM AUTHOR]

The Fijian government's response since 2010 to the loss of preferential access to the European Union's previously highly protected sugar market has been to increasingly support its cane growers and millers. That support is now much higher than most other countries' assistance to the sugar industry. This study provides detailed estimates of the changing extent of those transfers to producers from both taxpayers and consumers during 2010–22. In doing so, it estimates for the first time an annual time series of nominal rates of assistance to producers and consumer tax equivalent rates (NRAs and CTEs, but they are also converted to producer and consumer support estimates as defined by the OECD). Those NRA and CTE estimates have been approaching 100%. The level of support was equivalent to 10% of Fiji's agricultural value added in 2018–21 and is around 5% of its government's consolidated revenue—at a time when the government has a very high debt‐to‐GDP ratio (90% in 2022). Since the nature of the support is economically inefficient, inequitable, environmentally damaging and fiscally unsustainable given foreseeable market prospects, suggestions are made as to how that support might be repurposed to provide better economic, social and environmental outcomes for Fiji. [ABSTRACT FROM AUTHOR]

In this paper, we use simple accounting schemes and counterfactual experiments, to compare the sources of changes in the public debt to GDP ratio across countries of the European Periphery (Greece, Ireland, Italy, Portugal and Spain), the European Core (Germany and France) and the other G7 countries (Canada, Japan, the United Kingdom and the United States), in two periods—2000–2007 and 2008–2015. In general, Debt‐to‐GDP ratio rose in all countries in the latter period. But the effects of total or primary fiscal deficits, inflation and real growth on the respective Debt‐to‐GDP ratio changes were different across countries in both periods. In the European Core, Ireland and the Anglo‐Saxon countries, successful countercyclical fiscal policies, tended to lower Debt‐to‐GDP ratio. However, in the other European Periphery countries and Japan, unsuccessful countercyclical policies, had the opposite effect. Since in the Euro Area (EA), monetary policy is common and fiscal policies were restricted by rules, this development suggests that differences in shock propagation mechanisms were important drivers of the observed differences in the behaviour of Debt‐to‐GDP ratio between the European Core and the EA Periphery, except Ireland. An implication of this result is that the recently announced EU transfers to the EA Periphery tied up to incentives to improve economic efficiency, seem to be the right policies to ameliorate the effects of the recession brought about by the various social distancing measures to fight the COVID‐19 pandemic, without increasing the Debt‐to‐GDP ratios of these countries. [ABSTRACT FROM AUTHOR]

This article discusses the fiscal sustainability of Indonesia in the context of the COVID-19 pandemic. The pandemic necessitated expansionary fiscal policies to support households and businesses, resulting in a rise in the country's central government debt-to-GDP ratio. The article examines Indonesia's fiscal sustainability compared to Malaysia and Thailand, finding that all three countries have achieved fiscal sustainability. However, challenges to increasing government revenues, such as the large informal sector, are identified. The article also highlights the increase in interest payments and the use of monetization to address the government's deficit. The importance of targeted use of fiscal policies in sectors like health and social protection is emphasized, and other factors that could affect fiscal sustainability, such as interest rates and exchange rates, are discussed. The article concludes that without significant fiscal reforms, the Indonesian government should continue to be fiscally conservative. [Extracted from the article]

This paper analyzes the effect of remittance inflows on external debt in developing countries, by identifying international reserves as a potential transmission channel. Using panel data over the period 1970–2017 and covering 50 low-and middle-income countries worldwide, we find a positive and significant effect of remittance inflows on the external debt-to-GDP ratio. We also find a negative and significant effect of international reserves on external debt. After controlling for international reserves, the effect of remittance inflows on external debt increases; it remains positive and significant. The results suggest that the role of international reserves as a self-insurance mechanism, and the Dutch disease effect related to remittance inflows are at play. In addition, we find negative and significant effects of economic growth and savings-investment gap on external debt. We also find positive and significant effects of the nominal exchange rate and the United States lending interest rate on external debt. We discuss the policy implications of these findings, while highlighting factors that policymakers should focus on for containing external debt in developing countries in the post-COVID-19. [ABSTRACT FROM AUTHOR]

At the beginning of 2010, the fiscal situation of Greece was unsustainable, and an ambitious but costly adjustment plan had to be put in place under a consortium of the International Monetary Fund, the European Commission and the European Central Bank. It took three consecutive adjustment programmes, including debt-relief through private sector involvement, to restore confidence in the economy and achieve a budget surplus. In this paper, we provide a theoretical analysis of the Greek Crisis starting from 2010. We build a series of counterfactuals using the National Institute General Econometric Model (NIGEM) to analyse why the cost of the adjustment in terms of GDP loss and increase in debt-to-GDP ratio turned out to be much worse than expected. In doing so, we analyse three scenarios: (i) one in which we simulate a much more conservative cut in public investment by the Greek central government; (ii) a second scenario of a lower risk-premium, signalling, e.g., lower political and re-denomination risks, had the European Central Bank guaranteed its lending of last resort role earlier than 2012; (iii) finally, a similar financial envelope as the one adopted during the first Greek adjustment programme but over a longer period, moving beyond the standard IMF three-year duration programmes. We find that the mix of expenditure cuts and loss of confidence among households and firms explain a large part of the unanticipated costs of the adjustment in the Greek crisis. [ABSTRACT FROM AUTHOR]

Using IMF's World Economic Outlook (WEO) data for the macroeconomic variables, this study comparatively examines the sovereign debt crises in Sri Lanka and Bangladesh. It identifies different macroeconomic factors related to the sovereign debt crisis, investigates their interrelations, and explores if their debt crises are similar. It shows that the general revenue to Gross Domestic Product (GDP) ratios of Sri Lanka degraded to converge with the upgrading status of Bangladesh during the Covid-19 period. Since 2010, Sri Lanka has maintained a well-off economic status with per capita GDP, while Bangladesh has a long way to go yet. The general expenses to GDP ratio of Sri Lanka shows stresses on its GDP, while that of Bangladesh is more relaxed. Sri Lanka has overstressed debt to GDP ratio along with Balance of Payments (BOP) deficits, while Bangladesh has continued traces of managed debt to GDP ratio along with BOP surpluses. Bangladesh has taken enough precautions in their sovereign debt management, compared to Sri Lanka. Even in 2020, Bangladesh maintained progressive investment track over the threshold limit of 30%, while Sri Lanka fell into a debt trap. Following the pandemic, Bangladesh has enjoyed a gross national savings to GDP ratio of above the threshold of 25%, while Sri Lanka is going through a critical phase. It shows governance myopia of Bangladesh regarding its imbalanced current account positions, while governance myopia of Sri Lanka exists with reference to its imbalanced current account positions, adverse gross debts, and government borrowing as well. [ABSTRACT FROM AUTHOR]

The main research question addressed in the paper is related to the possibility of medium-term forecasting of the public debts of the EU member states. The analysis focuses on a broad range of indicators (macroeconomic, fiscal, monetary, global, and convergence) that influence the public debt levels of the EU member states. A machine learning prediction model using random forest regression was approbated with the empirical data. The algorithm was applied in two iterations—a primary iteration with 33 indicators and a secondary iteration with the 8 most significant indicators in terms of their influence and forecasting importance regarding the development of public debt across the EU. The research identifies a change in the medium term (2023–2024) in the group of the four most indebted EU member states, viz., that Spain will be replaced by France, which is an even more systemic economy, and will thus increase the group's share of the EU's GDP. The results indicate a logical scenario of rising interest rates with adverse effects for the fiscal imbalances, which will require serious reforms in the public sector of the most indebted EU member states. [ABSTRACT FROM AUTHOR]

The purpose of this study is firstly to assess the impact of the Covid-19 pandemic on the South African economy and secondly, to explore the recovery prospects in the aftermath of the pandemic. The key macroeconomic variables include GDP, debt-to-GDP ratio and budget deficit/surplus. Publicly available secondary data with a time span from 2000 to 2022 are utilised. The study adopted a descriptive research design and conducted quantitative analyses. The results show that the biggest gap between government revenue and expenditure was recorded in 2020, as evidenced by the 10% of the budget deficit. The results also indicate that the debt-to-GDP ratio is way above the 60% threshold with a steeper positive slope, coupled with less encouraging economic growth, as evidenced by low GDP projections. Fiscal sustainability requires keeping the debt-to-GDP ratio in check over the medium term by limiting government expenditures and stimulating investment.

We assess public finances solvency for Euro Area countries, using quarterly data from 1999Q1 to 2020Q4. For most countries: (i) the primary budget balance reacts positively to the lagged debt-to-GDP ratio and past primary budget balances contribute to the reduction of the debt-to-GDP ratio, indicating a Ricardian fiscal regime. In the country-by-country analysis, we confirm (ii) the "elusive character of fiscal sustainability" (Afonso and Jalles, 2016). Furthermore, in a panel framework: (iii) the response of revenues to government expenditures is higher from 2010 onwards, whereas the response is lower for higher average debt-to-GDP ratios; (iv) the response of the primary budget balance to the lagged debt-to-GDP ratio is lower from 2010 onwards and is higher for higher average debt-to-GDP ratios; (v) past primary budget balances enable the reduction of the debt-to-GDP ratio, especially before 2010 and also in countries whose average debt-to-GDP ratio is between 60% and 90% of GDP. Using a rolling window method, we find that (vi) the higher the lagged debt-to-GDP ratios, fiscal rule indexes, and sovereign ratings, the greater are the fiscal sustainability coefficients. Conversely, (vii) those coefficients are lower both after 2010 and during periods of legislative elections. These results have important implications for public finances management and solvency. [ABSTRACT FROM AUTHOR]

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This paper empirically studies public debt sustainability with the penalized panel splines approach for 25 EU economies from 2000 to 2019 by estimating the response of the primary surplus to lagged debt relative to GDP, respectively. A positive coefficient on average indicates sustainable policies, which is supported by all our results. Moreover, we show that this relationship is not homogeneous across the distribution of the debt ratios but varies with the magnitude of public debt to GDP. The estimations reveal a strongly increasing reaction for small and high debt ratios while it is rather flat for intermediate levels. This holds for normal times, too, whereas during years of economic crisis a monotonously increasing response can be observed. Additionally, for a cluster consisting of smaller EU economies, there is an indication of 'fiscal fatigue', meaning that the effort of active fiscal counter-steering peters out for high ratios of public debt to GDP. The same effect can be observed for the whole sample and a sample including the large EU economies, once Greece is removed. [ABSTRACT FROM AUTHOR]