Have many countries with big government debt which is reflection from the World economic crisis and other global factors. What is the problem in debt management according to you? How could it be econometrically explored?
Dear Silvia,
This is an interesting topic indeed. Debt management involves a considerable effort from policy makers in order to decide about what time of debt to choose, the time horizon, the sectors that will benefit from the debt and the institution to borrow from. When these issues are discussed, then the debt could become beneficial to a country.
GOVERNMENT DEBT is not a problem; it is part of state affairs. Likewise there js no problem with government debt manabement. It is the lack of management that is the problem. Tax and speng is normal, but borrow and spend is not normal unless the borrowing is properly managed. Part of state fiscal policy is managing repayment of what you borrow.
Government debt is mainly an outflow of money from its reserves be it internal or external debts. Management of debts is mostly a challenge to developing nations who borrow without the financial muscle to pay back loans.
There seems a widespread belief that high state debt is bad for countries. Most famously, an association between debt and poor growth was suggested by Reinhart and Rogoff. I suspect, however, that this association arises because states take on high debt only when forced to do so by some hostile circumstance such as crisis or war and that it is this underlying problem that causes both the debt and the poor growth, rather than there being any direct causal link between the two.
Causality is always a challenge to demonstrate. However, if you could show that countries with little debt that faced problems similar to those faced by countries with heavy debt also had similarly poor growth over the following years this would be highly suggestive.
Hi Silvia. Please allow me to explore Robert Macrae's idea further. Once a country bears foreign debt, it becomes more vulnerable to exchange rate shock which in turn diminish growth. There were times when exchange rate shock was unavoidable, like the 2015 Renminbi devaluation. Conversely, poor growth also worsens exchange rate. Eventually, this back-to-back causality becomes downward spiral. Instead of solving the program, foreign debt makes it even worse.
Thank you for your useful replies Mr Yudhi Dharma Nauly , Mr Lazarus Chigura , Mr Robert Macrae !
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