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Fiscal Sustainability Assessment for Suriname 1978-2017: A Fiscal Reaction Function Approach

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  • Mungroo, Albert
  • Tjon Kie Sim-Balker, Peggy

Abstract

High and unsustainable public debt is an economic problem at the center of many emerging and developing economies. This paper investigates, for the period 1978-2017, how the Surinamese Government reacted to changes in public debt for the period 1978-2017 and assesses if fiscal policy was sustainable. To do so, a fiscal reaction function was estimated by using the following econometric techniques OLS, VAR, TAR, GMM and VECM. The results showed a positive and significant, but weak, relationship between the primary balance and total debt indicating that governments do react to debt-increases by improving the primary balance. The sustainability exercise also showed that fiscal policy is sustainable. However, it is found that this sustainability was not a result of appropriate fiscal policy. While factors outside of the Governments control worsened the primary balance through declining revenues, fiscal policy did not react swiftly by adjusting expenditures, which led to increases in inflation, affecting real interest rates, thus stabilizing debt in an unfavorable manner.

Suggested Citation

  • Mungroo, Albert & Tjon Kie Sim-Balker, Peggy, 2020. "Fiscal Sustainability Assessment for Suriname 1978-2017: A Fiscal Reaction Function Approach," IDB Publications (Working Papers) 10708, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:10708
    DOI: http://dx.doi.org/10.18235/0002766
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    More about this item

    Keywords

    Primary balance; Output gap; Total debt; OLS; GMM; TAR; VAR; VECM;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • N96 - Economic History - - Regional and Urban History - - - Latin America; Caribbean
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies

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