Internal public debt and economic growth: the case study of Ukraine

Abstract

The paper addresses an estimation of public debt-to-GDP threshold ratio in the developing economy encountered with an excessive public debt impact on macro dynamics. An active field of the study focuses on the internal public debt due to a recent tendency of external share substitution in the developing economies. Among a lot of publications dedicated to the public debt, the study object usually focuses on an array of countries using the same method to evaluate the threshold ratio. Analyzing behavior specifics concerning economy in crises and thereafter, there is a need to carry out the public debt study for the particular economy as well. The research suggests an algorithm for determining internal public debt-to-GDP threshold ratio by applying a scenario modeling tool. Taking into account a growing burden of public debt in Ukraine, the authors have elaborated an econometric macro model operated through fiscal-monetary interaction. The model was used to evaluate the internal public debt-to-GDP threshold ratio in Ukraine. The threshold ratio proves to be 40% of GDP, while the similar result for the total amount of public borrowings is about twice as high. Although the given ratio remained below the estimated threshold as of the mid-term of 2017, a space degree is small and going to collapse soon. Considering sluggish economic recovery following the last recession took place in 2014-2015, Ukraine will face the challenge of reopening the agenda of growing debt burden in a near future.

Material production and GDP in Ukraine: theoretical concept and financial assessment

“…Ruiz (2018) states that, in the industrialized economies, institutional investors have a positive effect on the growth of GDP per capita. Voskoboynikov (2017), Shvets (2017) state that overall positive economic dynamics can be achieved by efficient reallocation of resources and an institutional environment that can stimulate technology diffusion among firms. 2017) in their studies concerning the influence of the real sector on economy growth claim that manufacture still has the dominant role in the economic development as "achieving economic development by following the path of industrialization will likely remain important for low-income countries because they are able to take advantage of their backwardness relative to those countries which have already experienced rapid industrialization".…”

The Effects of Government Borrowing to Investment Growth of the Country

“…According to certain theories, internal debt may actually promote economic growth depending on how it is used. The economy would perform better in real terms if governments used the borrowed funds to invest in infrastructure projects, health care, and education (Shvets, 2017). Comparatively, several researchers concur that the accumulation of internal debt substantially speeds up a country's process of development and that it has a more powerful overall effect on economic expansion and development than external debt.…”

An investigation into the impact of total revenue and internal public debt on Iraqi economic growth from 2004 to 2021

“…The Quantum of these expenditures is divided through numerous means to spread the burden among citizens and different areas of the economy (Kousar et al, 2020). Shvets and Shvets (2017), and Akhanolu, Babajide, and Victoria (2018) discussed the fact that public debt has a significant impact on the distribution of goods and services, capital accumulation, economic growth, income, unemployment, and stability, scholars have proposed a variety of theories regarding the desirability of public debt. In both academic and policy circles, the use of public debt as an effective instrument of economic policy, particularly in stabilization, has been demonstrated and acknowledged (Saungweme & Odhiambo, 2019).…”