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The purpose of this paper is to present a dynamic macroeconomic framework that identifies the fundamental structure of public debt accumulation process in developing countries and its two way linkages with economic growth and public finances. Within this framework, the objective of this study is to identify leverage points that may be utilized to slow down debt accumulation process without slowing down economic growth.

The paper uses the system dynamics (SD) method to model and analyze the debt accumulation process. This method allows us to analyze the relationship between structure and behaviour of complex dynamic systems. This paper considers fiscal policy as the strategic element of the debt accumulation process and hence it considers seignorage and consequent inflation to be outside the model boundary. In other words the paper assumes that there exists an effective monetary policy that satisfies the objectives of the fiscal policy.

Capping debt servicing (debt relief) increases the debtor country's capacity to invest and the higher investment will raise capacity to pay debt in the future, with some of the rewards going to the creditor. Financing public investment through borrowing produces the highest Debt-GDP ratio compared to all other polices considered. Widening of the tax base to include this informal sector without increasing the tax rate and reducing the extravagant non-debt current expenditure are effective endogenous policy options that help reduce considerably the Debt-GDP ratio. The best composite policy demonstrates that a reduction in the Debt-GDP ratio does not only require exogenous assistance (debt relief) but endogenous government and private sector responsibility to maintain fiscal discipline and generate growth.

The unique characteristic of this model is the transparent way in which it represents the two-way feedback relationship between the debt, public finance and economic development taking into consideration the delays and non-linearities involved in this process.

This study is a pre-COVID-19 exposition of the existing situation about external debt-GDP relationship, incorporating corruption into the hypothesis, making South Africa the object of the study. The aim is to examine the causal relationship between corruption, economic growth and external debt, and in the end proffer solutions to the problems arising therefrom.

The study employed ARDL technique on time series data running from 1990 to 2019 with real gross domestic product as the dependent variable and external debt, external debt servicing, corruption, inflation and capital formation as regressors. Necessary tests that include unit root, cointegration, CUSUM and CUSUMSq, normality, serial correlation and heteroscedasticity were performed on the model.

The study shows that corruption, inflation and external debt servicing exert negative influences on economic growth while the effect of investment on growth was positive. External debt's effect in the short run was positive while its long-run effect on growth was negative. Among other things, the need to improve and strengthen public institutions in addition to targeting tax evaders and avoiders for increased government revenue were emphasized.

The study incorporates corruption into the country specific debt-GDP debate as against earlier studies that excluded corruption in their time series analysis or that were cross-country based. The authors also exposit the existing knowledge of the debt-GDP hypothesis before the outbreak of COVID 19 pandemic. This is expected to serve as a precursor to subsequent studies on the rising debt of South Africa during and after the pandemic.

This chapter examines the effect of changes in the public debt–gross domestic product (GDP) ratio on long, 10 year, interest rates in a panel of 17 countries over the period 1870–2016 controlling for other variables, in particular the world interest rate. Over this long period, one can argue that most of the big changes in public debt were the product of factors largely exogenous to national interest rate determination, such as war, depression or financial crisis. The issue is of current relevance since the Covid-19 pandemic has caused large increases in the ratio of public debt to GDP in many countries. The estimates suggest that it is the change in debt, rather than the level of debt or the deficit that matters for long interest rates. World interest rates have long- and short-run effects on interest rates which are very well determined and close to one. Current inflation has a small but significant effect.

This study aims to explore the determinants of public debt in selected South Asian Association for Regional Cooperation (SAARC) countries for 19 years, from 2001 to 2019.

Using ordinary fixed and random effect models, the authors examine the role of internal and external factors in determining the composition of public debt. Furthermore, for robustness, they compare the results with two-stage least square (2SLS) regression estimates after considering the problem of endogeneity, overidentification, under-identification and weak instruments.

The findings show that among the selected macroeconomic variables, inflation, exchange rate and broad money have significant negative effects on the debt-GDP ratio. In contrast, military spending, corruption and interest rates appear to positively influence the same as per 2SLS results. From the policymaking perspective, SAARC countries should focus more on reducing military spending and make a concerted effort to augment investments in productive projects. Further, with strong fiscal consolidation and institutional quality, it is important to mitigate the frequent occurrence of corruption conundrums in emerging economies for the development of a transparent economic system.

The study is distinct from previous studies in two ways. First, to the best of the authors’ knowledge, there are no studies focusing on SAARC countries in the context of public debt. Second, the study expands the existing literature on public debt by taking into account both external and internal debts to decipher the within-country and cross-country determinants of debt accumulation. More specifically, this model considers accountability and transparency in the public sector, cross-border security challenges and benefits of globalization by including explanatory variables such as corruption, military expenditure spending and capital inflows.

This analysis seeks to deal with the emerging economies and to reveal that, if the fiscal authority is accountable with a policy that stabilizes the public debt/GDP ratio, the consequence is a low Treasury bond risk premium.

Based on the purpose of this paper, a theoretical model is developed and empirical evidence through an autoregressive distributed lag (ADL) model, taking into account the Brazilian experience, is made.

The findings denote that domestic variables are responsible for determining the risk premium. Moreover, a correct management of the public debt and the use of primary surplus targets make for a good strategy for promoting a fall in the Treasury bond risk premium.

Primary surplus and public debt/GDP ratio can be used as important tools for mitigating the Treasury bond risk premium.

The results of the paper give some new insights about the management of fiscal policy for developing countries.

This paper aims to assess the fiscal sustainability in Egypt during the period 1990–2018 using deficit accounts (DA) approach. It also tries to investigate the possibility of applying generational accounts (GA) in Egypt as a new approach to assess fiscal sustainability.

This paper tries to assess fiscal sustainability in Egypt during 1990–2018 using DA and GA approaches. DA approach includes primary deficit indicator, tax gap indicator, augmented Dickey-Fuller stationarity test for debt/GDP ratio and Johansen co-integration test between government revenues and expenditures. However, concerning the possibility of applying GA in Egypt, field study form was designed including specific questions to academic and executive economic experts to investigate if it is possible to apply GA in Egypt.

The empirical findings of the field study indicate that Egypt witnessed fiscal sustainability during the period 1990–2018 using DA. On the other hand, there are various obstacles, including administrative, technical, legal and political obstacles which hinder Egypt from applying GA to assess fiscal sustainability.

To the best of the authors' knowledge, this paper assesses fiscal sustainability in Egypt using DA for a longer and updated time series within 1990–2018. In addition, it is the first paper to examine the possibility of assessing fiscal sustainability using GA approach in Egypt.

The purpose of this study is to examine the fiscal sustainability issue by dividing the fiscal deficit into high and low regimes using the quarterly data from 1997: Q1 to 2013: Q3. Further, we obtain the optimum level of public debt at which fiscal sustainability can be achieved.

This study uses the Markov Switching-Vector Error Correction Model (MS-VECM) for examining fiscal sustainability and threshold regression model to obtain the optimum level of debt.

The results derived from MS-VECM reveal the evidence in favor of fiscal sustainability during low fiscal deficit periods. Similarly, using a threshold regression model, the optimum public debt as a percentage to GDP seems to be around 21 per cent on a quarterly basis, beyond this level, public debt hurts economic growth.

From the policy front, the government of India should cut down the fiscal deficit only if debt reaches beyond a threshold level.

Noting that the vast literature has focused on examining the fiscal sustainability in India, the novelty of this study is to examine the fiscal sustainability by considering high and low deficits regimes using a non-linear approach.

The purpose of this paper is to examine the effects of financialisation on the changing structure of housing supply in Malaysia. The share of newly launched sub-MYR250,000 houses has been decreasing continuously in the past decade. This implies that housing developers are launching more expensive houses. The greater focus on higher cost housing could be attributed to inflation. But while input cost is rising, the housing sector has also become increasingly financialised. This claim can be supported by the rising share of mortgage and real estate loans in gross domestic product. Financialisation is a process in which the financial sector becomes more dominant relative to the real sector. The extent to which this process is responsible for the changing structure of housing supply in Malaysia is investigated.

A survey of the literature suggested that the decreasing the proportion of newly launched sub-MYR250,000 housing could be result of rising input cost, greater degree of financialisation and changing market concentration. Thus, long-run cointegrating equations were formulated and estimated. These equations linked housing share with financialisation, market structure and input cost. The quantitative and qualitative impact of financialisation on the structure of housing supply is of interest.

The analyses of secondary data suggested that financialisation and input cost did indeed contribute to the decrease in proportion of newly launched sub-MYR250,000 housing. However, the impact of market concentration on housing share was ambiguous. This conclusion survived several robustness checks.

The financialisation of the housing sector implies that developers are increasingly building for profits instead of accommodating the social objective of providing shelter. This result is unsettling because access to adequate housing is a human right. The transformation of housing from the concept of a shelter to a tradable, money-making asset could be a major contributor to the declining housing affordability in the country. Thus, efforts to improve affordability must take account of the effects of financialisation.

An empirical framework for assessing the changes in the structure of housing supply was developed. Existing studies tended to focus only on the volume of housing supply. It is a comprehensive study on changes in the structure of housing supply. Second, while existing studies on the financialisation of housing are mostly qualitative in methodology, this paper offers a quantitative assessment of the financialisation in the housing sector.

The purpose of this paper is to appraise the stability of Ghana’s fiscal policy by assessing government’s reaction in the past to rising public debt over the last three decades.

Using quarterly data spanning 1990Q1-2013Q2, the study evaluated the mean reverting properties of Ghana’s public debt and also estimate the fiscal policy reaction function. The complementary estimation techniques include Pesaran et al. (2001) bound testing cointegration test, differencing method and also Granger two-step cointegration methods.

Using quarterly data from 1990Q1 to 2013Q2, the study found the fiscal policy to be unstable in the 1990s, necessitating the adoption of Heavily Indebted Poor Countries’ initiative in 2001. The fiscal situation however relatively stabilizes afterwards following the external debt relief in 2001. Nevertheless, the study reveals that the recent fiscal policy (since 2006) seems to be confronted with tremendous fiscal pressures, exacerbated by fiscal excesses during election cycles as well as excessive domestic and external borrowings. In addition, the economic growth-debt link was found to be weak, though debt appears to adversely affect economic growth.

The study does not thoroughly explore the possibility of non-linear relationship between public debt and primary balance. Also, the result could be different using different data frequencies.

The state of government finance has implications on the monetary policy and economic growth prospects of an economy. As an inflation targeting central bank since 2002, a successful monetary policy implementation that reins in inflation requires fiscal policy that curtails fiscal volatilities originating from imprudent behaviour of government. Therefore, the looming fiscal pressures in recent times would impair the effective implementation of the inflation targeting framework by the central bank, and also retard economic growth as the bulk of these expenditures are usually recurrent in the case of Ghana.

This is the first paper to employ complementary econometric techniques to empirically evaluate fiscal sustainability in Ghana.

The purpose of this paper is to explain why some countries in the eurozone between 2010 and 2012 experienced a dramatic vicious circle between hard austerity plans and rising default risk premia. Were such plans too small, and hence non-credible, or too large, and hence non-sustainable? These questions have prompted theoretical and empirical investigations in the line of the so-called “self-fulfilling beliefs”, where beliefs of unsustainability of fiscal adjustments, and hence default on debt, feed higher risk premia which indeed make fiscal adjustments less sustainable.

Detecting the sustainability factor in the evolution of spreads is uneasy because it is largely non-observable and may be proxied by different variables. In this paper, the authors present the results of a dynamic principal components factor analysis (PCFA) applied to a panel data set of the 11 major EZ countries from 2000 to 2013, consisting of each country’s spread of long-term interest rate over Germany as dependent variable, and an array of leading fiscal and macroeconomic indicators of solvency fiscal effort and its sustainability.

The authors have been able to identify the role of these indicators that combine themselves as significant latent variables in boosting spreads. Moreover, the large joint deterioration of these variables is identifiably located between 2009 and 2012 and particularly for the group of countries under most severe default risk (with Italy and France as borderline cases). The authors also find evidence that the announcement of the European Central Bank Outright Monetary Transactions program has improved the sustainability assessment of sovereign debts.

Dynamic PCFA is a rather unusual technique with respect to standard econometric tests of models, which is particularly well-suited to reduce the number of variables in a data set by extracting meaningful linear combinations from the observed variables that may concur to explain a given phenomenon (the dependent variable). These combinations, called “common factors”, can be interpreted as latent, non-observable variables.