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FreeBalance Customers on the Road to Debt Sustainability

 

July 31, 2013

FreeBalance Customers on the Road to Governance Success, Part 4

Carlos Lipari, FreeBalance Advisory Services

The level of government debt is a government indicator. Liberia, Sierra Leone and Iraq, among other FreeBalance clients, benefited from debt relief programs over the last 10 years.  Thanks to these relief programs, debt ratios in these countries became considerably lower, releasing funds for poverty reduction policies. Nevertheless, debt relief programs are not the sole reason why Public Debts diminished in percentage of the GDP. Along with such programs, these countries managed to register strong economic growth rates, which contributed to further reduction in the relative size of public debts. They also decreased their fiscal deficits through higher governmental revenues while avoiding the temptation of increasing expenditures significantly.

Overall, while the Advanced Economies sharply increased public debts, most of FreeBalance clients experienced remarkable debt reductions. This reduction was remarkable to the extent that most of these countries owe currently less in percentage of their GDP than that of most Advanced Economies.

 (Average computed with Antigua & Barbuda, Guyana, Iraq, Liberia and Sierra Leone)

In the previous graph we were not able to include Afghanistan, Kosovo, Mongolia, Timor and South Sudan due to lack of consistent data. To knowledge, there is no evidence that including these countries would in any way change the conclusion that the overall debt, in percentage of the GDP, is being quickly reduced among FreeBalance clients.

If we compute a simple average of the public debts among the previously mentioned FreeBalance clients (we see that the average public debt fell from 312% of the GDP in 2004 to just 47% in 2013. Also, it is expected to continue decreasing in the next 5 years based on IMF projections. As mentioned before, FreeBalance clients/countries benefited from significant debt relief programs during the last decade but the overall public debt decrease was also possible due to strong reductions in the fiscal deficits, usually combined with strong economic growth rates. Such fiscal deficits reductions were possible due to expenditure controls, which stabilized expenditure growth in percentage of the GDP, together with revenue increases.

 

The following histogram shows us what the debt to GDP ratios were across 172 countries. Most of the countries have debt levels of less than 50% of the GDP. FreeBalance clients still owe in percentage of the GDP on average more than most countries but these debt levels are moreclustered towards theGlobal average than they were 10 years ago

Contents

  1. Introduction to the Study
  2. Government Revenue
  3. Government Expenditures
  4. Government Gross Debt
  5. Country Investment
  6. Real Investment Growth Rates
  7. Government Effectiveness
  8. Interpretation
  9. Conclusions
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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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