Analysis on the Impact of Public Debt on Economic Growth Case of Republic of Kosovo

Since the half of the last century the importance of public debt as an instrument of economic policy, is increasing more and more. Public debt as a form of financing for meeting the needs of state, besides being present in developed industrial countries, it is used a lot in developing countries or countries in transition. This is because these countries face with a lot of economic and social problems and they use public debt as one of the forms to overcome these difficulties, with a tendency of economic growth, financial stability and raising the standard and economic welfare of society.
All states apart from the public revenue collection as a source for coverage of public expenditure, they also need other financial resources, because very often most countries cannot collect sufficient budgetary revenues to meet all the budget expenditures. Therefore, this is one reason why the public debt is created.
Among economists there are always debates and dilemma about how much optimum percentage of public debt should be so that it will not affect the obstruction of a country’s economic development. But in order this not to happen then there must be proper management of the public debt in order for it to be destined for appropriate projects which will contribute to the economic growth and development.
The Republic of Kosovo like other countries is burdened with public debt. Regarding the history of debt it is known that Kosovo had a public debt inherited from the time of former Yugoslavia amounting to 220.6 m0illion euros. Kosovo got this fund on behalf of the debt from the World Bank. Eventually, in 2009 Kosovo managed to begin to apply the services for processing the external debt, which according to the agreement, the debt must be returned to the World Bank until 2031. In Kosovo even the internal debt started to function, which began to be realized through the issuing of bonds. So in January 2012 the first bond auction was held.
Sustainable economic growth is essential for a country’s economic system, especially in developing countries or those in transition, such as the Republic of Kosovo. Economic growth, among other things, will also affect the creation of new jobs for the population who are able to work, so that through employment to improve the standard of living and economic welfare of the population. An optimal growth leads to stability of macroeconomic objectives.
According to what the Law for Public Debt in Kosovo says, the limit of the public debt should not exceed the level of 40 percent of Gross Domestic Product (GDP) and in the end of 2015 it turned out to be 28.50%(Annual Report 2015, CBK, p. 31) of the GDP.
Therefore, this study aims to analyze the impact of the public debt on economic growth of the Republic of Kosovo from the period when the public debt as a form of financing started to be applied up to the end of 2015, as well as the factors that affect the determination of these two indicators.

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