This paper examines the effectiveness of fiscal policy in Egypt under different debt regimes. In so doing, we evaluate the relationship between expansionary fiscal policy and real economic growth. Two elements of particular interest are the (non)linearity and the impact of domestic debt on macroeconomic variables. Specifically, we search for a threshold effect by applying the Hansen (2000) sample-splitting threshold regression model. We establish with statistical significance that fiscal expenditure leads to greater real GDP in a low-debt regime (81.5% domestic debt-to-GDP threshold) and lower real GDP in a high domestic debt above the threshold. We further explore and test possible theoretical explanation for the findings. The paper concludes with a discussion of policy implications of this research.

We propose a definition of public debt sustainability based on the possibility of conducting a fiscal effort or giving support to a macroeconomic path that makes it possible to reach a public debt target over a given horizon. The concepts of a fiscal effort and a macroeconomic trajectory are both speculative, as they rely on

the anticipation of unknown futures. By making the parameters of these futures explicit and using them in a parsimonious model, we can generate trajectories that are not forecasts but a means of assessing the effort required to reach a target that is conditional on explicit assumptions. Debtwatch is a web application, freely accessible at https://ofce.shinyapps.io/debtwatchr, that can be used to carry out simulations, not only for France but also for other European countries and certain non-European countries such as the United States, including by modifying the parameters and exchanging assumptions with others. It is possible to carry out a calculation that is transparent (the assumptions are known and can be shared) and reproducible (the same assumptions lead to the same results) and which should help to further the debate on public debt targets and the associated efforts for a selection of developed countries.

As the COVID-19 pandemic abates, pressure on the public finances in Ireland should ease but projected strong growth in public spending will see persistent deficits and high government debt through to 2025. At the same time, there is uncertainty as to the scale of future long-term spending pressures combined with the risk of lower government revenue from corporation tax. Against this backdrop, this Letter examines risks to the public finances from further debt-funded expenditure increases, lower tax revenue or a negative external growth shock. The analysis suggests that permanent increases in current spending should be balanced with revenue-raising measures elsewhere in the budget. A permanent loss of corporation tax combined with a negative external shock could increase government debt to over 115 per cent of modified national income (GNI*) by 2025.

One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform-based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.

We examine the dynamic effects of natural disasters in US states and relate them to state and federal fiscal policy. Disasters have significant negative output but less severe unemployment consequences. Real effects vary spatially: coastal and poor states recover more slowly. States with less stringent budgetary requirements and/or rainy day funds have insignificant real costs and negligible debt consequences. Countercyclical fiscal policy reduces the severity of the real downfall. Both federal and state governments respond to the disaster shock and aid by the former helps to lower the short run costs on state debt. The ability of states to run deficits and temporarily increase debt is a key factor in the recovery.

In November 2020, Zambia became the first African country to default on its Eurobonds during the COVID’s pandemic, bringing the country’s debt distress into headlines around the world. Bondholders’ refusal to provide debt suspension rested largely on fears that Zambia was not disclosing significant liabilities to Chinese creditors. In August 2021, national elections led to a surprise upset. A new president, Hakainde Hichilema took office, facing a debt burden that had never been fully transparent to Zambia’s public and the world. In a meeting with reporters from Bloomberg shortly after taking office, the new president commented: “We had known for a long time that there was non-full disclosure... So now that we’re in, we are beginning to see that the debt numbers that were being talked about officially are not really the comprehensive numbers.” The China Africa Research Initiative (CARI) has been tracking Chinese lending to African governments and their state-owned enterprises (SOEs) in Africa for much of the past decade. This CARI Briefing Paper is our contribution to public understanding of Zambia’s Chinese debt. We estimate that Zambia’s outstanding external debt to all Chinese financiers, official and commercial, was approximately US 6.6 billion in August 2021. We do not anticipate much change in this figure for the rest of 2021.

Over the past two decades, Cape Verde has evolved positively in regard to main macroeconomic indicators. But, in contrast with that observed in Sub-Saharan Africa, public debt increased sharply in the aftermath of the 2008-09 crisis, which may constrain growth and development. In order to assess if recent debt records result from pro-cyclical fiscal policy, we make an exhaustive analysis of debt dynamics in Cape Verde: i) we provide detailed records on debt dynamics and its composition and ii) through estimating cyclical elasticities of the budget balance, we compute structural primary deficits to identify the discretionary fiscal policy stance. We conclude that recent debt increase was mainly determined by primary structural deficits. However, discretionary policy was adequately counter cyclical or, when pro-cyclical, it was associated with investment efforts. Thus, debt correction will be an easy task to perform because debt bias does not mimic deficit bias due to political-cycle motivations.

We introduce a novel database on sovereign defaults that involve public debt instruments governed by domestic law. By systematically reviewing a large number of sources, we identify 132 default and restructuring events of domestic debt instruments, in 50 countries from 1980 to 2018. Domestic-law defaults are a global phenomenon. Over time, they have become larger and more frequent than foreign-law defaults. Domestic-law debt restructurings are achieved faster than foreign ones, often through extensions of maturities and amendments to the coupon structure. While face value reductions are rare, net-present-value losses for creditors are still large. Unilateral amendments and post-default restructuring are the norm but negotiated pre-default restructurings are becoming increasingly frequent. Finally, we document that domestic defaults are widely heterogeneous and we complement our analysis with a collection of documents, named \sovereign histories", that provide the new details about each default episode.

The pandemic has urged countries around the globe to mobilize financing to support the recovery. This is even more relevant in Central America, where the policy response to cushion the pandemic’s economic and social impact has accentuated pre-existing debt vulnerabilities. This paper documents the potential for local currency bond markets to diversify and expand financing for the recovery, lowering bond yields, funding volatility, and exposure to global shocks. The paper further identifies priority actions, both national and regional, to support market development.

This paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high-frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit-to-GDP ratio of 1 percentage point raises the 10-year nominal rate by 8.1 basis points. This is quantitatively similar for other Treasury maturities and for corporate debt interest rates. The paper also investigates which of the theoretical channels is driving this relationship and whether surprises are affecting interest rate expectations or the term premium. These results are used to estimate how recent spending proposals may affect interest rates.

The study examines the liabilities as a share of the GDP of the municipal subsystems of public finances and the organisations owned by them in EU Member States between 2013 and 2018. The main goal of the current study is to characterise the EU Member States regarding the examined two areas. Additionally, we analysed the connections between the entities’ liabilities, used statistical methods to compare the respective values and to examine the impacts of the local government system models and the geopolitical location on debt. There were three hypotheses formulated during the research, all of which were confirmed. A statistical connection can be perceived between the two areas of economic management of the local system, and it has also been established that the liabilities as a percentage of the GDP of local government owned corporations are significant, particularly in Scandinavian countries and Germany. At the same time, however, it has to be noted that the results of the theoretical division and the statistical analyses differ from each other. At the end of the study, we used a case study to examine how the two areas developed over time and how the regulatory environment affected debt value. In addition, we also considered the debt dynamics of municipalities and their business organisations, subject to a comprehensive fiscal reform after 2010, which represents another unique element of this study.

China and the eurozone are alike in terms of unbalanced regional growth and having a common currency. Inland China, with growth much slower than that of coastal China, calls for a weak currency. However, RMB, the common currency for all of China, cannot depreciate to match inland China’s weak fundamentals and is thus overvalued from the perspective of inland China. Without monetary autonomy to devalue its overvalued currency, inland China has to turn to debt issuance, leading to higher indebtedness in inland China. This study, therefore, establishes a link between regional currency overvaluation and local government indebtedness. We show that city-level currency overvaluation is positively associated with higher local government debt. Our findings suggest that a 1% increase in regional currency overvaluation prompts the new issuance of local government debt by approximately 0.2%. This effect can be magnified by a higher degree of labor market immobility and spatial disequilibrium.

This paper attempts to gauge the effects of various fiscal and monetary policy rules on macroeconomic outcomes in the euro area. It consists of two major parts – a historical assessment and an assessment based on an extended scenario until 2030 – and it builds on the ECB-BASE – a semistructural model for the euro area. The historical analysis (until end-2019, ’pre-pandemic’) demonstrates that a consistently countercyclical fiscal policy could have created a fiscal buffer in good economic times and it would have been able to eliminate a large portion of the second downturn in the euro area. In turn, the post-pandemic simulations until 2030 reveal that certain combinations of policy rules can be particularly powerful in reaching favourable macroeconomicoutcomes (i.e. recovering pandemic output losses and bringing inflation close to the ECB target). These consist of expansionary-for-longer fiscal policy, which maintains support for longer than usually prescribed, and lower-for-longer monetary policy, which keeps the rates lower for longer than stipulated by a standard reaction function of a central bank. Moreover, we demonstrate that in the current macroeconomic situation, fiscal and monetary policies reinforce each other and mutually create space for each other. This provides a strong case for coordination of thetwo policies in this situation.

This paper contributes empirical insights on nonlinear public debt and resource rent nexus in the Nigerian economy which in several ways typifies highly indebted resource-rich sub-Saharan nations in terms of rich natural resource endowments, excessive reliance on resource rent revenue that is susceptible to global price volatility, public debt unsustainability risks, a cyclical trade balance and weak governance challenges, thereby differing remarkably from advanced and emerging economies. Predicated on Ricardian equivalence theory, the findings of both nonlinear ARDL cointegration and asymmetric dynamic multipliers estimates include (i) significant short-run and long-run asymmetric nexuses, (ii) negative shocks of resource rent impact more on public debt than positive shocks and (iii) the pre-shock equilibria are never attained subsequently; these results explain the persistent public debt pile up in the region. Implications for policy are discussed.

We confront five stylized facts related to sovereign default: 1) the presence of serial defaulters; 2) the prevalence of partial over complete default; 3) the counter-cyclicality of default; 4) non-linearity of sovereign spreads; and 5) heterogeneous outcomes among serial defaulters. In a model that integrates fiscal uncertainty and habit formation in policy, assuming incomplete financial markets, we demonstrate that default is habit and shock driven as well as non-strategic and involuntary. Moreover, there is no requirement for sanctions to sustain trading. In spite of dealing with serial defaulters, partial default is a robust equilibrium. We characterize good and bad fiscal habits and, that with the latter, expected default increases with habit persistence. The impact of habits on the expected default rate is the opposite of its effect on both the interest rate on public debt and base interest of the economy. The presence of habits also has implications for the cost of debt, default risk premium and the cost of default, and can shed light on country heterogeneities.

Greater access to international capital markets has meant that many African countries now owe a significant share of their debt to private bondholders, traded in secondary debt markets around the world. Accessing sovereign debt challenges for the continent would have to take on different forms, expanding beyond the traditional definitions of debt distress to broader market-oriented measures that identify crises through movements in sovereign bond spreads. In this paper, we use duration models to identify recent debt distress and recovery episodes in Africa from a market-oriented approach. Our results indicate that favourable external conditions combined with sound domestic policy and the presence of IFI-supported programs contribute to shorter episodes of bond market crisis. Specifically, more robust reserves, and lower levels of short-term debt shortens the duration of debt crises in Africa. Thus, both good policies and good luck have played complementary roles in facilitating recovery from debt distress in Africa.

Natural resources and government debt are integral to sustainable development. This paper presents an empirical study of the direct impact of natural resources on government debt, as well as the heterogeneity and impact mechanism. With cross-country panel data of 151 countries and regions from 1996 to 2015, this paper uses a fixed-effect empirical model and constructs the instrumental variables to deal with issues of endogeneity. We find that natural resource endowment significantly reduces government debt, and the effect is stronger for countries with lower levels of economic or political development. The mechanism analysis shows that natural resources significantly increase fiscal revenues but do not affect fiscal expenditures. Furthermore, natural resources significantly promote the output of upstream and downstream industries, as well as consumer-goods industries. This paper helps us better understand the relationship and the impact mechanism between natural resources and government debt and provides important policy implications for promoting the sustainable development of the world economy.

The present paper aims to divulge the nexus between external debt and economic growth in five SAARC countries: Bangladesh, India, Nepal, Pakistan and Sri Lanka, for the period 1971 to 2020. The primary investigation of the study reveals significant variation across countries. To consider the short-run and long-run effects of external debt and financial development on economic growth, novel estimation methods of panel ARDL and Granger causality are employed. It is also found that the PMG estimator is more reliable and effective. Empirical results confirm the presence of a long-run relationship between external debt and economic growth. Further, external debt negatively influences economic growth in the SAARC countries in long run as well as in the short run. Finally, the results of Granger causality reveal bi-directional causality among the variables. The findings suggest that the economic policies relating to the external debt of these countries should be defined by considering the financial sector of these countries. Further, the findings of the study offer useful insights for the policymakers of these countries.

This policy brief warns about the risks of discontinuing the policy responses to the COVID-19 crisis by pursuing exit strategies too early and/or too sharply. It outlines a comprehensive strategy for limiting such risks globally and offers an in-depth discussion of the European situation. Due to fiscal rules written in a pre-COVID-19 era and excessive emphasis on controlling public debt ratios, the Euro Area could be left with long-lasting scars, so its situation requires special treatment. Therefore, we articulate some policy proposals designed to preserve and strengthen the recovery in the EMU.

In recent times, Nigeria’s total debt stock and its debt management strategies have been a thorny fiscal policy issue in the academia and the media. This is made worse by the fact that the debt profile continues to increase with no infrastructure to show for the increasing debt profile. With contrasting views being canvassed in different circles as to the economic impact of these loans, it has been difficult to state what the exact impact Nigeria’s debt stock has on its economy and how effective the debt management strategies put in place have been. The debates notwithstanding, the fall in oil prices and the impact of the novel corona virus pandemic on the economy leaves the government with extraordinarily little options to address its budget deficit. Despite the dire economic situation, the energy poverty level in the country continues to rise; thereby increasing the need to deploy resources to address energy access in Nigeria.

This article therefore undertakes a legal and economic analysis of Nigeria’s debt profile and the debt management strategies. The article does so by comprehensively analysing the economic implications of Nigeria’s debt profile, the impact of its debt management strategies on its economy, and a legal analysis of its debt management strategies and policies. The article also analyses the impact of the total debt stock and the sovereign debt management strategies on energy poverty in the country. The article concludes by arguing that although available data suggests that Nigeria’s public debt is sustainably managed given the low debt to GDP ratio, the high cost of servicing these debts have adverse economic implications on development generally (and energy poverty in particular) and necessitates a thorough review of its legal and policy foundations for managing sovereign debt.