Fiscal strategies for sustainable debt management in developing economies: dynamic common correlated effects approach

In the aftermath of the COVID-19 pandemic, public debt in emerging and developing economies surged to a historic high, averaging nearly 67% of GDP by 2021. As soaring debt levels cast a long shadow over macroeconomic stability and sustainable growth, finding effective strategies is more urgent than ever. This study offers fresh insights by exploring the role of fiscal consolidation, public–private partnerships (PPPs), and resource productivity in reducing public debt using a panel of 45 emerging and developing economies from 2001 to 2021. Employing the Dynamic Common Correlated Effects estimator, this study accounts for heterogeneous cross-sectional dependence and long-run debt dynamics. The findings reveal that fiscal consolidation and public–private partnerships reduce the public debt, whereas resource productivity posits weaker significant influence toward public debt reduction. These findings are further confirmed by Augmented Mean Group Estimation approach. Furthermore, this study finds that all three factors are robust to negatively influence public debt in upper-middle-income economies, whereas only fiscal consolidation and public–private partnership are effective to reduce public debt in lower-middle-income economies. These insights underscore the importance of tailored fiscal frameworks, institutional reforms for PPP efficiency, and long-term strategies to enhance resource productivity in ensuring debt sustainability and macroeconomic stability.