Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

Chandia, Khurram Ejaz; Riaz, Sadaf; Javid, Attiya Yasmin; Iqbal, Muhammad Badar; Al-Mashat, Mariam; Gul, Ifra

doi:10.1177/0976399619825688

Cited by 12 publications

(12 citation statements)

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“…of studies which have extensively covered the assessment on rising level of debts. However, those studies are either limited to the determinants of debt dynamics [13][14][15][16][17] or a separate assessment of debt sustainability [17][18][19][20][21][22]. Besides, mostly the literature focus on external debt and its sustainability with the scant literature on dynamics of total public debt and its sustainability analysis [16,21,23].…”

Section: Introductionmentioning

confidence: 99%

“…However, those studies are either limited to the determinants of debt dynamics [13][14][15][16][17] or a separate assessment of debt sustainability [17][18][19][20][21][22]. Besides, mostly the literature focus on external debt and its sustainability with the scant literature on dynamics of total public debt and its sustainability analysis [16,21,23]. However, for a financially starved country like Pakistan facing twin deficits, the high level of public indebtness is a serious macroeconomic issue.…”

Section: Introductionmentioning

confidence: 99%

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An empirical investigation of determinants & sustainability of public debt in Pakistan

2022

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An assessment of debt dynamics and its sustainability is very important in formalizing prudent and effective macroeconomic policies especially for the economies with weak macroeconomic fundamentals and alarming debt levels. Keeping in view the recent debt escalation in Pakistan, this study aims to explore the important factors that influence the public debt dynamics in case of Pakistan and to evaluate its sustainability. This study applies the debt dynamic approach for empirical assessment of drivers of changing debt levels and analysis of public debt sustainability. Furthermore, ARDL approach is utilized to study the short- and long-run debt dynamics using historic data from 1975 to 2021. This study is distinct from already existing work on debt assessment in Pakistan as it examines both important dimensions of public debt (determinants & stability) by employing the novel dynamic debt modelling approach and using most recent data. The study finds a positive and significant impact of fiscal deficit, exchange rate depreciation and interest rate on public debt in Pakistan. The debt sustainability analysis also reveals the instability of public debt for the entire study period except for few years. The regression results corroborate with the findings from stability analysis, and the main driving forces for increasing the debt burden of the country are found to be the fiscal indiscipline along with the rising cost on account of ER depreciation and higher interest rates.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

An empirical investigation of determinants & sustainability of public debt in Pakistan

2022

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“…The current study could be helpful in initiating the research on the potential reforms which could be possibly helpful for overhauling the macroeconomic ills and fiscal structure of the economy, which could solve the problems of the common people of Pakistan. Though there is an abundance of empirical research (Chandia et al ., 2018a, b; Chandia et al. , 2019) suggesting the need for reforms in the fiscal structure of the economy, the actual frameworks and experimental results are missing which could be helpful in generating real-time results at macro-level.…”

Section: Discussionmentioning

confidence: 99%

An analysis of the linkages among fiscal vulnerability, financial stress and macroeconomic policies: an econometric study

Chandia

Iqbal

Bahadur

2022

FREP

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PurposeThis study aims to analyze the imbalances in the public finance structure of Pakistan’s economy and highlight the need for comprehensive reforms. Specifically, it aims to contribute to the empirical literature by analyzing the relationship between fiscal vulnerability, financial stress and macroeconomic policies in Pakistan’s economy between 1971 and 2020.Design/methodology/approachThe study develops an index of fiscal vulnerability, an index of financial stress and an index of macroeconomic policies. The fiscal vulnerability index is based on the patterns of fiscal indicators resulting from past trends of the selected variables in Pakistan’s economy. The financial stress in Pakistan is caused from the financial disorders that are acknowledged in the composite index, which is based on variables with the potential to indicate periods of stress stemming from the foreign exchange market, the securities market and the monetary policy components. The macroeconomic policies index is developed to analyze the mechanism through which fiscal vulnerability and financial stress have influenced macroeconomic policies in Pakistan. The causal association between fiscal vulnerability, financial stress and macroeconomic policies is analyzed using the auto-regressive distributive lags approach.FindingsThere exists a long-run relationship between the three indices, and a bi-directional causality between fiscal vulnerability and macroeconomic policies.Originality/valueThis study contributes to the development of a fiscal monitoring mechanism, which has the basic purpose of analyzing the refinancing risk of public liabilities. Moreover, it focuses on fiscal vulnerability from a macroeconomic perspective. The study tries to develop a framework to assess fiscal vulnerability in light of “The Risk Octagon” theory, which focuses on three risk components: fiscal variables, macroeconomic-disruption-associated shocks and non-fiscal country-specific variables. The initial contribution of this work to the literature is to develop a framework (a fiscal vulnerability index, financial stress index and macroeconomic policies index) for effective and result-oriented macro-fiscal surveillance. Moreover, empirical literature emphasized and advised developing countries to develop their own capacity mechanisms to assess their fiscal vulnerability in light of the IMF guidelines regarding vulnerability assessments. This study thus attempts to fulfill the said gap identified in literature.

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“…Another country level variable, government debt ratio refers to gross government debt as a percentage of GDP (World Bank data base computations). According to Chandia, Riaz,, Javid, Iqbal, Azam and Gul (Chandia et al, 2019), the significance of public debt sustainability is of critical importance in developing as well as advanced economies. High government debt restricts the policymakers to bail out the banks in the financial distress.…”

Section: Determinants Of Systemic Riskmentioning

confidence: 99%

MES vs ∆CoVaR: Empirical evidence from Pakistan

Hanif

Yousaf

Waheed

et al. 2021

Cogent Business & Management

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The global financial crisis unveiled that inadequate analysis of risk can annihilate the financial system and repercussions can encompass the whole economy. Pakistan is one of the developing economies that has experienced robust growth in the banking sector. This hard earned growth can only be sustained by adequately examining the risk exposure of the financial system. Consistent with this purview, this study attempts to comprehensively analyse for the first time, the systemic importance of financial institutions of Pakistan using ∆CoVaR and MES. Moreover, the study employs System GMM to analyze the bank, sector and country level determinants of systemic risk measures. The findings of the study signify that MES and ∆CoVaR measures identify different institutions as systemically important. Similarly, the influence of variables also changes with change in the systemic measure. The estimation of determinants of systemic risk outline that non-interst income is insignificant when MES is used as measure of systemic risk but the same turns significant for ∆CoVaR. The impact of deposit ratio also changes across the measures of systemic risk. Concentration has positive impact on MES but negatively influences ∆CoVaR. Finally, the impact of bank claims also varies across the measures of systemic risk. The study contributes to the literature by highlighting the complementary nature of systemic risk measures for the first time in a developing economy like Pakistan. The study also identifies important relationships necessary ABOUT THE AUTHORS

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Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

Cited by 12 publications

References 24 publications

An empirical investigation of determinants & sustainability of public debt in Pakistan

An empirical investigation of determinants & sustainability of public debt in Pakistan

An analysis of the linkages among fiscal vulnerability, financial stress and macroeconomic policies: an econometric study

MES vs ∆CoVaR: Empirical evidence from Pakistan

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