Analysis of public debt sustainability based on the concept of fiscal space: Case of the Republic of Congo
DOI:
https://doi.org/10.18559/rielf.2025.1.2458Keywords:
sustainability, public debt, debt limit, fiscal space, fiscal breathlessnessAbstract
Objective – The main objective of this paper is to study the sustainability of public debt in the Republic of Congo through the concept of "fiscal space" and to propose economic policy measures to help consolidate this fiscal space.
Approach – Our approach to assessing the sustainability of Congo's public debt via fiscal space is inspired by the model of Ghosh et al. (2013). It involves a non-linear reaction function of the primary budget balance in response to increases in public debt. Following Lozano-Espitia and Julio (2019), the risk premium is endogenous to the level of indebtedness, such that the interest rate rises as debt increases.
Findings – The estimated debt limit and fiscal space for Congo in 2020 are 109% and 10.5% of GDP, respectively. This indicates that the Congolese government’s fiscal leeway is clearly insufficient to ensure the long-term sustainability of its public debt. The estimation results also show that when public debt reaches 82% of GDP, Congo’s debt level becomes concerning, and the government's fiscal reaction function weakens when public debt reaches 102.6% of GDP.
Originality – What distinguishes this research is its focus on defining and quantifying the concept of public debt sustainability through the utilization of thresholds and points of exhaustion of the reaction function. This approach provides a more tangible understanding of the boundaries within which the government’s fiscal policies can operate to ensure the long-term viability of its public debt.
JEL Classification
Debt • Debt Management • Sovereign Debt (H63)
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