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Empirical Assessment of Sustainability and Feasibility of Government Debt: The Philippines Case

Author

Listed:
  • Duo Qin

    (Queen Mary, University of London)

  • Marie Anne Cagas

    (Asian Development Bank)

  • Geoffrey Ducanes

    (Asian Development Bank)

  • Nedelyn Magtibay-Ramos

    (Asian Development Bank)

  • Pilipinas F. Quising

    (Asian Development Bank)

Abstract

This paper develops empirical methods of assessing the sustainability and feasibility of public debt using the No Ponzi Game criterion, using the Philippines as the testing case. Both historical data and forecasts generated by a quarterly macro-econometric model are used in the assessment. Stochastic simulations are carried out to mimic future uncertainty. The test results show that, up to the end of the present administration in 2010, the Philippine government debt is not sustainable but weakly feasible, that the feasibility is vulnerable to major adverse shocks, and that simple budgetary deficit control policy is inadequate for achieving debt sustainability or strengthening feasibility.

Suggested Citation

  • Duo Qin & Marie Anne Cagas & Geoffrey Ducanes & Nedelyn Magtibay-Ramos & Pilipinas F. Quising, 2005. "Empirical Assessment of Sustainability and Feasibility of Government Debt: The Philippines Case," Working Papers 527, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp527
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    References listed on IDEAS

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    1. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    2. Blanchard Olivier & Weil Philippe, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-23.
    3. Cagas, Marie Anne & Ducanes, Geoffrey & Magtibay-Ramos, Nedelyn & Qin, Duo & Quising, Pilipinas, 2006. "A small macroeconometric model of the Philippine economy," Economic Modelling, Elsevier, vol. 23(1), pages 45-55, January.
    4. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 949-963.
    5. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2001. "Government Debt as Insurance against Macroeconomic Risk," IZA Discussion Papers 412, Institute for the Study of Labor (IZA).
    6. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank.
    7. Nigel A Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
    8. Razin, Assaf & Sadka, Efraim, 2002. "A Brazilian Debt-Crisis Model," CEPR Discussion Papers 3541, C.E.P.R. Discussion Papers.
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    10. Emmanuel S. de Dios, et al, 2004. "The Deepening Crisis : The Real Score on Deficits and the Public Debt," UP School of Economics Discussion Papers 200409, University of the Philippines School of Economics.
    11. Desiree A. Desierto & Geoffrey M. Ducanes, 2013. "Philippines," Chapters,in: Asia Rising, chapter 13, pages 385-407 Edward Elgar Publishing.
    12. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    13. O'Connell, Stephen A & Zeldes, Stephen P, 1988. "Rational Ponzi Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 431-450, August.
    14. David E. Lebow, 2004. "Recent fiscal policy in selected industrial countries," BIS Working Papers 162, Bank for International Settlements.
    15. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-417, October.
    16. Hendry, David F, 2002. " Applied Econometrics without Sinning," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 591-604, September.
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    Citations

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    Cited by:

    1. Benjamin E. Diokno, 2007. "Economic and Fiscal Policy Determinants of Public Deficits: The Philippine Case," UP School of Economics Discussion Papers 200702, University of the Philippines School of Economics.
    2. Aleksandras Vytautas Rutkauskas & Viktorija Stasytytė & Nijolė Maknickienė, 2014. "Government debt as the integral portfolio of assets and liabilities generated by debt," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(1), pages 22-40, February.
    3. Benjamin E. Diokno, 2010. "Philippine fiscal behavior in recent history," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 47(1), pages 39-87, June.
    4. Benjamin E. Diokno, 2008. "The Philippines : Fiscal Behavior In Recent History," UP School of Economics Discussion Papers 200804, University of the Philippines School of Economics.
    5. Uryszek Tomasz, 2015. "Long-term Sustainability Of Public Finance In The Central And Eastern EU Member States / Długoterminowe Zrównoważenie Finansów Publicznych w Krajach Europy Środkowej i Wschodniej Należących Do Ue," Comparative Economic Research, De Gruyter Open, vol. 18(4), pages 47-61, December.
    6. Tang, Chor-Foon & Lau, Evan, 2011. "The Behaviour of Disaggregated Public Expenditures and Income in Malaysia," Review of Applied Economics, Review of Applied Economics, vol. 7(1-2).
    7. Chin-Hong Puah Author_Email: chpuah@feb.unimas.my & Evan Lau & Hui-Fern Teo, 2011. "Testing Budget Sustainability In Sarawak State," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-221, Conference Master Resources.

    More about this item

    Keywords

    Government debt; Ponzi game; Rollover bond portfolio;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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