Assessment of External Debt Sustainability in Selected Arab Countries during the Period (1980-2019): An Econometric Approach

Document Type : Original Article

Authors

1 Faculty of Commerce Damnhour University Egypt

2 Faculty of Economic Studies and Political Science Alexandria University Egypt

Abstract

This study aims to assess the sustainability of external debt in Eight Arab countries including Egypt, Sudan, Algeria, Jordan, Tunisia, Morocco, Lebanon, and Mauritania using time series data over the period 1980 to 2019. In addition to the contrast of traditional debt ratios to sustainability threshold levels set by international organizations such as the world Bank and IMF, the paper utilizes the present-value methodology to determine whether the examined Arab countries satisfy their intertemporal external constraint, and hence whether their external debt is sustainable in the long run. This methodology requires testing the stationarity of the external debt, imports, and exports time series, and testing the cointegration between these variables. The stationarity of the time series is examined using standard unit root tests as well as tests that account for structural breaks in the time series of the variables under investigation. Cointegration is examined using an Autoregressive Distributed lag (ARDL) bounds test.
The empirical results, of both the debt ratios- threshold analyses and the present value approaches show robust evidence that the external debt is unsustainable in Egypt, Sudan, Morocco, Tunisia, Lebanon, and Jordan while there is some evidence of debt sustainability in Algeria and Mauritania. These findings would represent an early warning message to policy makers that a debt crisis will occur. The study presents and discusses several recommendations that could guide policy makers in debt management and achieving a sustainable level of external debt.

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