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

  • Received November 14, 2017;
    Accepted December 8, 2017;
    Published December 13, 2017
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/pmf.06(4).2017.03
  • Article Info
    Volume 6 2017, Issue #4, pp. 23-32
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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.

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    • Figure 1. The comparative dynamics of GDP and the ratio of broad money (M2) to internal public debt (Dint)
    • Figure 2. The block diagram of fiscal-monetary interaction model
    • Figure 3. The dynamics of Domestic Government Bonds in circulation (DGB)
    • Figure 4. The correlation between Domestic Government Bonds in circulation (DGB) and broad money (M2), Q1 2005–Q2 2017 (bln. UAH)
    • Figure 5. The comparative GDP dynamics based on actual data (Actual) and modeling results (Baseline)
    • Table 1. The scenario verification of the threshold ratio, (Q1 2008‒Q4 2013)