Impact of public debt in Zimbabwe
56301544
Stochastic simulation analysis of sustainable public debt in Zimbabwe
This paper applies dynamic stochastic simulation methods to assess sustainable public debt management policies in Zimbabwe. The methodology applied involves estimating a fiscal reaction function and using it to simulate public debt path using a stochastic approach and historical information on drivers of public debt accumulation and their volatility. The results from the baseline scenario show that Zimbabwe's public debt would not deviate much from the desired regional indicative target in the SADC region of 60 percent in the medium to long term. The policy implication is the need for policy makers to proactively respond to the changing macroeconomic environment and to implement countercyclical fiscal policies to limit the probability of debt from exploding. Key words: Public debt dynamics, debt sustainability, stochastic simulation, fiscal reaction function.
Mupunga Nebson Le Roux Pierre
155023614
A Historical Public Debt Database
This paper describes the compilation of the first truly comprehensive database on gross government debt to GDP ratios, covering nearly the entire IMF membership (174 countries) and spanning an exceptionally long time period. The database was constructed by bringing together a number of other datasets and information from original sources. For the most recent years, the data are linked to the IMF World Economic Outlook (WEO) database to facilitate regular updates. The paper discusses the evolution of debt to GDP ratios across country groups for several decades, episodes of debt spikes and reversals, and a pattern of negative correlation between debt and growth.
S M Ali Abbas Nazim Belhocine Asmaa A ElGanainy Mark A Horton
154557133
Debt Maturity Structure and Liquidity Risk
This paper analyzes debt maturity structure for borrowers with private information about their future credit rating. Borrowers' projects provide them with rents that they cannot assign to lenders. The optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk. Liquidity risk is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders. Borrowers with high credit ratings prefer short term debt, and those with somewhat lower ratings prefer long term debt. Still lower rated borrowers can issue only short term debt.
Douglas W Diamond
157720996
Impact of Foreign Debt on Economic Growth in Zimbabwe
The study investigates the impact of foreign debt on economic growth in Zimbabwe. Time series data covering the period 1980 2013 is analysed using ordinary least squares regression. Labour force, capital investment, and trade openness are used as control variables. The results show that external debt and trade openness impact negatively on economic growth in Zimbabwe while capital investment and labour force growth has a positive effect. The study recommends that the country should not heavily rely on foreign borrowing to finance economic growth but should rather create a conducive environment for alternative sources of foreign funds such as project finance and foreign direct investment. It is further recommended that the country should curb excessive imports of consumables and encourage value added exports by local manufacturers.
Amos Tendai Munzara
54010891
Growth Debt Nexus: An Examination of Public Debt Levels and Debt Crisis in Zimbabwe
Government debt is an indirect debt of the taxpayers, and can be classified as internal or external. Debt crisis is the general term for a proliferation of massive public debt relative to tax revenues. Public debt enables governments to invest in critical areas of the economy where the capacity of tax revenue to undertake these projects may be limited or in situations where printing additional money will disrupt the stability of the economy. Government borrows in order defer difficult but necessary reforms such as the imposition of taxes which might be necessary to generate revenue for development. Countries with high public debt tend to grow slowly. The study examines the origin of debt crisis in Zimbabwe, debt nature, causes, consequences and possible ways of reducing the debt. The study uses 1980 2013 data to run an OLS model on economic growth using STATA Econometric Software, in an effort to explore the effect of external debt. The regression results shows that public debt has a negative effect on economic growth in Zimbabwe, which has varying theories prevailing. The study concludes by encouraging the government not to borrow unnecessarily, and to use borrowed funds for investment projects, rather than on consumption expenditure.
Wellington Garikai Bonga Frank Chirowa Joseph Nyamapfeni
7054023
Institutions, Financial Markets and Firm Debt Maturity
Do firms in developing countries use less long term debt than similar firms in industrial countries? This paper investigates the role of institutional factors in explaining firms' choice of debt maturity in a sample of 30 countries during 1980 91. Demirguc Kunt and Maksimovic examine the maturity of firm debt in 30 countries during the period 1980 91. They find systematic differences in the use of long term debt between industrial and developing countries and between small and large firms. In industrial countries, firms have more long term debt and a greater proportion of their total debt is held as long term debt. Large firms have more long term debt, as a proportion of total assets and debt, than smaller firms do. The authors try to explain the variations in debt composition by differences in the effectiveness of legal systems, the development of stock markets and the banking sector, the level of government subsidies, and firm characteristics. In countries with an effective legal system, both large and small firms have more long term debt relative to assets and their debt is of longer maturity. Both large and small firms in countries with a tradition of common law use less long term debt, relative to their assets, than do firms in countries with a tradition of civil law. Large firms in common law countries also use less short term debt. In countries with active stock markets, large firms have more long term debt and debt of longer maturity. Neither the level of activity nor the size of the market is correlated with financing choices of small firms. By contrast, in countries with large banking sectors, small firms have less short term debt and their debt is of longer maturity. Variation in the size of the banking sector does not have a corresponding correlation with the capital structures of large firms. Government subsidies to industry increase long term debt levels of both small and large firms. For all firms, inflation is associated with less use of long term debt. The authors also find evidence of maturity matching for both large and small firms. This paper a product of the Finance and Private Sector Development Division, Policy Research Department is part of a larger effort in the department to understand the impact of institutional constraints on firms' financing choices. The study was funded by the Bank's Research Support Budget under the research project Term Finance: Theory and Evidence (RPO 679 62)
Vojislav Maksimovic Asli Demirguc-Kunt
54499321
The Real Effects of Debt
At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new dataset that includes the level of government, non financial corporate and household debt in 18 OECD countries from 1980 to 2010. Our results support the view that, beyond a certain level, debt is a drag on growth. For government debt, the threshold is around 85% of GDP. The immediate implication is that countries with high debt must act quickly and decisively to address their fiscal problems. The longer term lesson is that, to build the fiscal buffer required to address extraordinary events, governments should keep debt well below the estimated thresholds. Our examination of other types of debt yields similar conclusions. When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated.
Stephen G Cecchetti Madhusudan S Mohanty Fabrizio Zampolli
55349430
Analyzing the Theoretical and Empirical Foundations of Public Debt Dynamics in Zimbabwe
This paper provides an analysis of the theoretical and empirical foundations of public debt dynamics in Zimbabwe. The analysis was undertaken by applying the debt dynamics equation that enables estimating the required primary balance, building on the government inter temporal budget constraint to infer the factors that influence public debt, as well as to ascertain specific policy issues required to ensure a sustainable public debt structure. The results from the simulation analysis show that debt dynamics in Zimbabwe are largely composed of huge stock flow adjustments to finance social and political related expenditures. This underscores the need for prudent debt management to guard against unexpected changes in public debt, which are not explained by fundamentals. The major policy implication from the study is the need to minimize the interest rate growth differential and to implement growth enhancing fiscal policies to ensure a sustainable long term public debt position.
Nebson Mupunga and Pierre Le Roux
155495935
Estimating the optimal growth maximising public debt threshold for Zimbabwe
This paper attempts to estimate an optimal growth maximising public debt threshold for Zimbabwe. The public debt threshold is estimated by assessing the relationship between public debt and economic growth. The analysis is undertaken to determine the tipping point beyond which increases in public debt adversely affect economic growth. The paper contributes to the debate on the link between public debt and growth by testing the presence of a Laffer curve type relationship, where the contribution of public debt to growth is theorised to be positive at lower levels and negative at higher levels of public debt. The analysis confi rms the existence of an inverted U shaped relationship between public debt and economic growth in Zimbabwe. The optimal growth maximising public debt threshold was estimated at a public debt to GDP ratio of between 45 and 50 per cent. The policy implication of the analysis is the need to ensure that public debt management policies are in line with the growth maximising public debt threshold. This will ensure sustained economic growth and employment rates, which are key tenets for sustainable economic development. Key words public debt threshold, growth maximising, Laffer curve
N Mupunga Pierre le Roux
16724128
Debt Enforcement around the World
Insolvency practitioners from 88 countries describe how debt enforcement will proceed against an identical hotel about to default on its debt. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs. piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. This measure is strongly correlated with per capita income and legal origin and predicts debt market development. Several characteristics of debt enforcement procedures, such as the structure of appeals and availability of floating charge finance, influence efficiency.
Journal of Political Economy
Simeon Djankov Oliver Hart Caralee McLiesh Andrei Vasiliev Dmitry Shleifer