Journal of Knowledge Management, Economics and Information Technology

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 million 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.

  Analysis on the Impact of Public Debt on Economic Growth Case of Republic of Kosovo (1.4 MiB, 1,594 hits)

The end of the first decade of the twenty-first century will be remembered by appearance of one of the greatest economic crisis. This time, it had a global character. The crisis has been appeared, almost unexpectedly, in the middle of 2007 in the US, but very soon it was transferred to other countries in the world as well. Very likely, it will last durably, with wide devastating consequences. The current economic crisis has made the existing unfavorable situation more complex and deepened the present imbalances and risks. The economic and financial crisis led to a strong increase in the public debt in the euro area countries, the United Kingdom, the United States and Japan. Moreover, without a change of policy, the public debt will continue to expand in most of developing countries such as Albania.
Public debt challenges are a major recurring concern across the globe. Today many countries face the prospect of high and unsustainable public debt levels amid a weak economic recovery caused by the global financial crisis that started in 2007. The impact of the crisis on public debt was immediate, severe and with potential long-lasting negative effects due to its housing roots and global reach. The basic aim of this article is to consider the effect of the current financial crisis on the movements and sustainability of the public debt in the period up to 2013.
The paper will try to analyze also the effects that public debt has on the economic growth through the examination of the main data used in this study. The results are consistent with the existing literature that has found a negative correlation between public debt and economic growth.

  Financial Crisis Effect on Public Debt in Western Balkans Countries (690.2 KiB, 3,208 hits)

According to Mankiw (2000), fiscal policy in major macroeconomic models adversely affects the behavior of private agents as consumers and firms and they affect economic growth through investment and savings decisions. Increasing government spending will increase the aggregate demand for goods and services and money demand in the money market leading to an increase of interest rates while markets tend towards equilibrium. The increased interest rates affect negatively the level of private investment. To assess the effect of fiscal policy on economic growth generally are used the endogenous growth models, which include technological progress as an integrated part of this model. These models were called endogenous because they were taking into account long-term economic growth and were using endogenous mechanisms to explain its main source which is the technological progress. Endogenous growth models developed by Barro (1990), Mendosa, Milesi-Ferreti and Asea (1997) or even by other economists, predict that the fiscal policy can affect the level of product and the long run economic growth. This conclusion is analyzed in the theory of Barro (1990), which extends the model by including the fiscal policy. The Barro’s model is the model used in this paper to analyze the effect of the fiscal policy on economic growth in the case of Albania. The empirical work shows that all the variables, except inflation which according to theoretical expectations should have a negative effect, affect positively the economic growth. This positive relation between these variables can be explained by investments in infrastructure and other priority sectors that the government has done during all this period.

  Empirical Evidence of Fiscal Policy Impact on Endogenuos Models of Economic Growth - the Case of Albania (281.3 KiB, 2,391 hits)