An evaluation of relationship between public debt and economic growth: A study of Afghanistan

Nassir Ul Haq Wani and Habib Kabir
Authors registered in the RePEc Author Service: Nassir ul Haq Wani () and Nassir Ul Haq Wani

MPRA Paper from University Library of Munich, Germany

Abstract: Public debt is one of the main macroeconomic indicators, which forms countries’ image in international markets. It is one of the inward foreign direct investment flow determinants. A prudent public debt management helps economic growth and stability through mobilizing resources with low borrowing cost and limiting financial risk exposure. The objective of this study was to establish the relationship between public debt and economic growth in Afghanistan. The study used secondary data collected from various sources collected from Ministry of Finance, treasury directorship, debt department, World Bank web page and Da Afghanistan Bank. The study period included 2008-2012 financial periods. The data was collected using data collection sheet which was edited, coded and cleaned. To establish the relationship between public debt and economic development, the study conducted a regression analysis. Domestic debt is characterized by higher interest rates compared with those on external debt, which is contracted mainly on concessional terms, and it is therefore expensive to maintain. Domestic debt reduction could be achieved using proceeds from the privatization program of public corporations, or the use of externally borrowed resources which are mainly on concessional terms to retire more expensive domestic debt. The government should therefore develop a framework for recording and monitoring all contingent liabilities and also formulate and implement a policy for management of the contingent liabilities. The government should therefore continue to implement wider reforms that promote investment in Treasury bonds, and encourage institutional investors such as pension funds and insurance companies to invest in Treasury bonds.

Keywords: Afghanistan; Public debt; Economic growth. (search for similar items in EconPapers)
JEL-codes: H0 H2 H6 H8 (search for similar items in EconPapers)
Date: 2016-10-19, Revised 2016-11-10
New Economics Papers: this item is included in nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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