Evaluation of Sustainability of the General Government Debt in a Small Open Economy

Abstract

As borrowing conditions and economy of indebted small open countries usually highly depend on changes in international financial markets and considering the vulnerability of their economy to stochastic changes of the global economy, such countries usually are exposed to relatively higher rate of borrowing-induced risk in comparison with big open economy countries. Indebted country with no capability to maintain sustainable government debt risks boosting its debt to such extent that would cause long term damage to its economy. However, one of the common problems, remaining in the contemporary economy, is the determination whether general government’s debt is sustainable or not. Results of such evaluation would help to determine the effectiveness of the debt management strategy of the country. The aim of the paper is to reveal the peculiarities of evaluation of sustainability of the general government debt in a small open economy.In the paper, peculiarities of borrowing of small open economy countries are briefly discussed. The most common methods of evaluation of the sustainability of government debt are presented. The general shortages, advantages and limitations of some basic evaluation methods are pointed out. Challenges to maintain sustainability of general government’s debt in small open economy countries are revealed. Example of Lithuania’s government borrowing and debt management is given.The main research methods employed in the paper are the following: systemization, generalization and logic analysis of scientific sources of information; quantitative, qualitative and comparative analysis of the data, case study, graphic presentation of the data and results.The paper concludes with the findings describing the main results of the research and patterns that could be followed when evaluating the sustainability of the general government debt in a small open economy country.

DOI: 10.5901/mjss.2013.v4n9p610