Fiscal sustainability in highly indebted countries: evidence from Jamaica

Abstract

Purpose This study aims to explore the sustainability of Jamaica’s public debt over a highly volatile period of time. Design/methodology/approach The authors use a suite of econometric tools, including, unit root testing, cointegration testing and estimating a fiscal reaction function. The authors control for structural breaks in the regression analysis. Findings The authors find that whilst reschedulings might be indicative of cash-flow problems in Jamaica, fiscal policy has responded effectively to increase the public debt, thereby making the debt sustainable. Notwithstanding the political economy and social demands of the population prior to the impact of the pandemic, the implications of higher debt stocks (higher debt-servicing and lower social expenditures) might make this approach to fiscal policy and debt management infeasible. As a result, the authors recommend that the government will need to take an active approach in managing its debt position to facilitate responses to shocks and provide conditions within which maintaining fiscal discipline is feasible. Originality/value To the best of the authors’ knowledge, this is the first study to explore fiscal sustainability in Jamaica over this time period whilst taking into consideration structural breaks caused by the global financial crisis and debt restructurings. The authors also take into consideration variables such as exchange rates and the occurrence of elections, which have not been included in previous studies.

Public Debt Sustainability in Indonesia after Financial Crisis and During COVID-19 Pandemic

“…Several previous studies related to the analysis of debt sustainability in developing countries [11][12][13][14][15][16][17][18][19][20][21][22][23]. In analyzing debt sustainability in Kazakhstan and the Russian Federation, Mukhtarkhan [11] applies the threshold value of public debt in both countries.…”

“…Previous research examined the sustainability of Jamaican government debt over the period 1996 to 2018 with quarterly data [15]. The analytical method used is unit root testing, cointegration testing, and fiscal reaction function.…”