An empirical analysis of sustainability of public debt among BRICS nations

• Published date: 01 May 2021
• Author: Justin Joy,Prasant Kumar Panda
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2170

ACADEMIC PAPER

An empirical analysis of sustainability of public debt among

BRICS nations

Justin Joy

1

| Prasant Kumar Panda

2

1

Department of Economics, CHRIST(Deemed

to be University), Bengaluru, India

2

Department of Economics, Central University

of Tamil Nadu, Thiruvarur, India

Correspondence

Justin Joy, Department of Economics,

CHRIST(Deemed to be University), Bengaluru,

Karnataka, India.

Email: justin.joyk@christuniversity.in

The main objective of this paper is to verify the sustainability of public debt among

Brazil, Russia, India, China and South Africa (BRICS) in a political economy frame-

work. Annual panel data have been used for BRICS countries from World Develop-

ment Indicators of World Bank for the period 1980–2017 for the analysis. Bohn's

sustainability framework is used to examine the sustainability of public debt in BRICS

nations and verify the influence of political economic variables such as election year,

coalition dummy, ideology of the government and unemployment on public debt sus-

tainability. The results suggest that public debt sustainability is weak for BRICS as a

whole. China and India have a better public debt sustainability coefficients compared

to the same for Brazil, Russia and South Africa. Structural change dummy included in

the model suggests that debt sustainability is severely affected after the 2008 crisis

period. Political factors have influence on debt sustainability in BRICS. Electoral cycle

year and coalition dummy variables adversely affect public debt sustainability in

BRICS. While centrist political ideology is found to be significant and negative, left

and right ideologies are not significant for debt sustainability. Since debt sustainabil-

ity is found to be weak in BRICS, countries in the region need to adopt necessary

measures to improve their primary balance through appropriate fiscal and debt man-

agement. Besides, it is important for the governments to prioritize fiscal prudence

irrespective of their ideologies and political compulsions.

JEL CLASSIFICATION

H63; C23; D72

1|INTRODUCTION

Publicdebt is an important instrument in the handsof sovereign govern-

ments to manage their fiscal imbalance that arises out of mismatches

between revenue generation and expenditure needs. In developing

economies, when resources are not fully utilized and developmental

needs are higher, obviouslygovernment resortsto borrowing for expan-

ding the economic activities. Public borrowings which are channelized

for promotinginfrastructure, creation of capital andfor productive uses

will increase production andrevenue also. But when debt is excessively

accumulated, it creates problem for fiscal management and drains out

government revenue through interest payment and debt servicing, and

createssevere shortage of resources for financing developmental needs.

Similarly when debt is utilized for the purpose of non-developmental

spending ofthe countries, generating productionand revenue would be

limited. Asa result, government would not be in a position to repay the

accumulated debt and interest. Debt would be unsustainable and it

would have severe macroeconomic implications. So it is important to

analysesustainability of public debt.

Debt sustainability is the ability of the country to serve its debt

without causing any fiscal imbalances (Marquez, 2000). It is important

to check the sustainability of public debt among Brazil, Russia, India,

China and South Africa (BRICS) nations because a sustainable debt

management is essential component for stable economy. It is impor-

tant to assess the stability of debt of these economies, so that their

investment requirements will not be affected.

BRICS being the block of fast-growing developing countries with

40% of world's population, 30% of world's gross domestic product

Received: 20 March 2020 Revised: 26 April 2020 Accepted: 29 April 2020

DOI: 10.1002/pa.2170

J Public Affairs. 2021;21:e2170. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of14

https://doi.org/10.1002/pa.2170