Public debt management in Serbia during transition, great recession and COVID-19 pandemic

Andrić, Vladimir (2024) Public debt management in Serbia during transition, great recession and COVID-19 pandemic. Serbian Journal of Management, 19. pp. 485-499. ISSN 2217-7159

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Abstract

This paper examines the nonlinear asymmetric behaviour of the public debt/GDP ratio in Serbia in the first two decades of economic transition following the political and market reforms started at the beginning of the twenty-first century. Using quarterly data for the government debt-to-GDP ratio, a two-regime self-exciting threshold autoregressive (SETAR) model of order one finds a public debt/GDP ratio threshold of 66.2% above which fiscal policymakers in Serbia take corrective action in the form of increased fiscal prudence. The estimated government debt/GDP ratio threshold corresponds to a 60% threshold from the Maastricht fiscal criteria and shows how fiscal authorities in Serbia systematically ignore the 45% public debt/GDP limit set in the national fiscal rules. Such fiscal policy behaviour could jeopardize the credibility of fiscal institutions in Serbia and have a negative impact on fiscal discipline and the likelihood of sovereign default.

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