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Assessment of The Causes of Origin of State Debt and Its Impact on The
National Economy
Juraev Pakhlavonjon Usarovich
Tashkent State University of Economics, Independent researcher, Uzbekistan
A R T I C L E I N f
О
Article history:
Submission Date: 14 March 2025
Accepted Date: 10 April 2025
Published Date: 12 May 2025
VOLUME:
Vol.05 Issue05
Page No. 8-13
D
OI: -
https://doi.org/10.37547/marketing-
fmmej-05-05-02
A B S T R A C T
This article describes the economic content of state debts and their
importance in developing the national economy. The definitions of
economists on the concept of state debt are studied and the author's
conclusions are formulated. The causes of state debts are studied and their
consequences are scientifically studied. Scientific proposals and practical
recommendations for the effective management of state debts are
developed.
Keywords:
State debt, domestic debt, external debt, strategy, state
bonds, costs, currency risks, national economy, financial indicator,
profitability.
INTRODUCTION
The results of the analysis of international practice
show that there are several reasons for the
relatively increased demand for external debt in
the countries of the world over the past decade and
the widening of differences between countries in
this regard. The most important of them are the
emergence of the global financial crisis, the
aggravation of social problems in some countries,
economic security issues, imbalances between
social requirements, increasing budget deficits as a
result of improper use of financial resources, and
emergencies.
Of course, it should be noted that in recent years,
as in world practice, the volume of external debt
has been increasing in Uzbekistan. This plays a
special role in solving important tasks in
improving the well-being of the population,
developing industrial sectors, implementing
fundamental reforms in the economy, and
developing roads, energy, and other important
infrastructure facilities. For developing countries,
the continued increase in the amount of external
debt will lead to an increase in the budget burden
on the state in repaying debts. In addition, negative
situations in the economy may arise as a result of
attracting corporate loans from domestic and
foreign markets and spending them on ineffective
projects or as a result of sharp changes in the
macroeconomic environment (for example, the
level of inflation, economic growth rate, and
national currency exchange rates).
Therefore, it is urgent to create a solid legislative
basis for effective public debt management in our
country, rationally use foreign countries' advanced
experience in debt management, and conduct
research to optimize the mechanism for
distributing debt funds to ensure their economic
efficiency.
METHOD
Foreign capital plays an important role in the
economic growth and development of developing
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ISSN: 2752-700X
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countries. Often, these countries lack the necessary
funds to ensure economic growth. In addition,
developing countries face a low income base and
high government operating costs, which leads to
increased dependence on foreign capital in the
form of remittances, financial assistance and
external loans. “However, the inflow of foreign
capital alone may not be enough for development,
as a healthy macroeconomic environment and
policy that prioritizes these capitals, which are
necessary to stimulate the process of economic
growth, are necessary” [1]. In the system of
economic development based on the market
mechanism, economists consider various external
factors to be the main factors in the emergence of
debt relations. In particular, M. Kashmiri's tariff
also emphasized that it is difficult to develop the
economy only by attracting external debt, and first
of all, the state should effectively use monetary,
fiscal and monetary instruments to develop the
economy [2].
“A high and unstable level of external debt is
dangerous for developing countries, leading to
fluctuations in the exchange rate, a “sudden”
stoppage of capital flows and a sharp outflow of
capital, which can lead to a banking system or
currency crisis” [3]. If we analyze the views
expressed by Irfan Qureshi, it is emphasized that
the level of risk of external debt is especially high
for developing countries. Indeed, if we look at the
example of national practice, today the level of risk
that may arise in our country related to external
debt is higher than in developed countries, and it
should be noted that, first of all, exchange rates are
changing and affecting with high volatility.
Growing external debt in the international
economy is directly related to internal and external
factors. One of these internal factors is the desire
of politicians to accelerate the process of economic
development in conditions of low and insufficient
domestic funds. This situation leads to an incentive
to borrow externally. External factors include low
interest rates on external loans and the willingness
of external creditors to lend [4]. Edo Nneka
Samson’s tariff can be seen as a literal continuation
of the ideas expressed by the above economists.
First, it is emphasized that attracting debt capital
without properly setting up internal economic
mechanisms and developing a procedure for their
effective use creates high economic risks.
External debt is one of the main problems of the
global economy, especially developing countries.
Bearing this in mind, it can be said that these
countries need to use effective strategic methods
to overcome the chronic debt crisis. “Strategic
analysis of external debt and rational management
of external debt should be well planned in
developing countries and be part of economic
reforms” [5].
The textbook published by T. Malikov and A.
Vakhobov provides general rates for public debt
activities and draws conclusions on their main
features. In particular, “Public debt arises as a
result of the implementation of borrowing
activities by the state. The
government’s debt
obligations to individuals and legal entities, foreign
states, international organizations and other
subjects of international law are called public debt.
Public debt is divided into two types depending on
the place of placement: internal public debt and
external public debt” [6].
J. Sheraliev emphasized that while public debt is an
attractive instrument with a number of positive
opportunities, the ineffective use of these capital
flows results in certain economic losses for the
state. That is, "although the state debt is
considered one of the important factors for the
development of the economy, its excessive
increase can have a negative effect on the future
economic growth. In such conditions, each state
should set an optimal limit on the amount of its
internal and external debt, this limit should be at a
point that minimizes the negative impact on the
country's economic growth, and it is currently one
of the tasks facing the economic policy of all states"
[7].
RESULTS
According to the Budget Code of the Republic of
Uzbekistan, "public debt is the obligations arising
from the mobilization of domestic and foreign
funds by the Republic of Uzbekistan" [8]. Similarly,
the Law on Public Debt of the Republic of
Uzbekistan defines public debt as "the obligations
arising from the mobilization of domestic and
foreign funds by the Republic of Uzbekistan" [9].
Public debt can be classified into internal, external,
short-term, and guaranteed types. Each of these
types has its sources of formation and possesses
specific advantages and disadvantages (see Table
1). In our opinion, public debt is attracted for the
following purposes:
•
To ensure macroeconomic stability and
improve the sovereign credit rating of the country;
•
To implement and finance large-scale
investment projects;
•
To restore and develop social infrastructure;
•
To cover the budget deficit;
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•
To restore the economy during emergencies;
•
To meet the capital needs of the corporate
sector of the economy, among others.
External debt plays a positive role in the
development of the national economy, and in our
view, this can be explained by the following points:
Firstly, through the attraction of external debt by
the state, it becomes possible to enhance
production processes in economic sectors where
financing through internal resources (under
conditions of insufficient budget revenues) is
difficult;
Secondly, by attracting additional financial
resources, it is possible to prevent increasing social
instability
and
reduce
poverty,
ensure
employment, and strengthen targeted social
protection measures;
Thirdly, by developing regional infrastructure,
national income can be distributed more equally
among regions and economic entities;
Fourthly, increasing the country’s investment
attractiveness creates a foundation for foreign
investments to flow in;
Fifthly,
the
development
of
production
infrastructure and the introduction of modern
innovative technologies are ensured;
Sixthly, the development of the national capital
market using modern instruments fosters
international integration processes.
In foreign literature, there are various approaches
to managing public debt. Each of these approaches
is based on the practices of the countries studied
by scholars. This is not coincidental, as economists
have proposed specific management mechanisms
based on a country’s internal capabilities, level of
macroeconomic development, development of the
financial market, dependence on external
economic factors, and the level of economic
development.
Table 1
Types of Public Debt and Reasons for Their Emergence
Causes of Origin
Type
of
loan
Positive consequences
Negative
consequences
budget
deficit,
stimulation
of
economic
growth,
regulation of inflation
Domestic
loan
covers
the
budget
deficit, develops the
financial
market,
strengthens the Central
Bank's instruments
interest rates increase,
negatively
affecting
the private sector
need for investment,
demand for foreign
currency, prospective
development projects
External
loan
increases
foreign
exchange
reserves,
increases
technology
and
experience,
develops infrastructure
exchange
rate
pressure, sensitivity to
external interest rates,
increased
debt
dependence
short-term
liquidity
problems, increase in
current expenditures
Short-term allows
for
rapid
decision-making,
ensures continuity of
public services
need to repay in the
short term, interest
payment pressure
financing
strategic
projects,
planned
investments
Long-term enables
sustainable
development,
implementation
of
government programs
increase in the debt
burden in the future,
not always achieving
high results on long-
term projects
support
for
private
sector projects
Guaranteed
loan
encourages investment
risk of non-return - is
borne by the state
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Based on the study of these approaches, we will
attempt to outline their common features. In
our opinion, the management of public debt
should be carried out according to the
following criteria:
•
Timely fulfillment of all obligations on the
principal and interest of the attracted funds;
•
In determining the amount of repayments,
consideration must be given to the current
macroeconomic situation when forming public
debt;
•
Diversification of the composition of internal
and external debt and ensuring financial
independence;
•
Allocation of attracted funds across relevant
sectors and industries, presentation of expected
returns, and provision of transparent information
regarding all operations;
•
Assigning special functional responsibilities to
study public opinion on the use of debt resources.
As mentioned above, the methods of managing
public debt depend on the state’s debt
management policy, where agreements on debt
obligations are executed based on mutual
agreements between the parties.
In addition, in cases of failure to meet debt
obligations on time or unjustified delays, legal
measures are applied both at the international and
national levels, as provided by regulatory legal
documents.
Moreover, in order to ensure the effective
management of public debt and the country's
solvency, a method of introducing changes to the
debt policy through debt restructuring is also
applied.
Debt restructuring refers to obtaining additional
time to repay the debt or a part of it. Of course, the
process of debt restructuring is implemented
based on additional agreements between the
creditors and the debtor state.
Sources of public debt financing
are divided into
external and internal sources, which differ in terms
of crediting and financing features. Public debt is
financed from the following sources:
•
Assistance provided by alliances jointly
established by specific countries;
•
Preferential loans from major international
and regional banks;
•
Preferential loans and financing instruments
provided by the Asian Development Bank (ADB).
Sources formed on the basis of credit for public
debt include:
•
Loans from the IMF, ADB, World Bank, and
regional banks and funds;
•
Loans from foreign governments;
•
Borrowings
from
international
capital
markets;
•
Borrowings from the Eurobond market,
among others.
In international practice
, domestic public debt is
considered one of the key tools for redistributing
income among the population. This is because, as
shown by international experience, government
securities are seen as instruments with either no
risk or minimal risk, equal to the risk-free rate.
Table 2.
Main Features and Methods of Public Debt Management
Method
Description
Explanation
Refinancing of
public debt
Repayment of interest and
principal on loans by placing
new instruments or at the
expense of additional financial
resources
from
financial
institutions
This method is usually viewed as
a drawback in the use of debt
funds, but it ensures that the state
makes
payments
on
its
obligations in accordance with
the terms of the contract.
Unification
Consolidation of several debt
securities previously issued by
the state into one type
This allows for the consolidation
of payments on the basis of
bonds issued by the state,
treasury bills and certificates, or
vice versa.
Change
of
terms
Amending
the
terms
of
payment between the parties
This method prevents the loss of
"confidence" in payments and the
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emergence of obligations for
additional penalties.
Moratorium
Delaying
payments
by
amending relevant decisions
and regulatory documents
This involves a special decision
by the government for specific
reasons and a postponement of
the payment period for internal
and external debts to creditors for
a certain period.
Write-off
Reaching an agreement with
creditors on partial or full
write-off of debts
This method is understood as an
agreement with creditors to
waive a certain part or all of the
debts due to social crises, default,
war and other political reasons in
the state.
Securitization
Exchanging debt obligations
for bonds
This method has a high level of
risk, and the main collateral is a
mortgage, car loan, leasing, etc.
A
financing
mechanism
is
created based on third-party
obligations.
Prepayment
Premature payment is made in
accordance
with
the
agreements agreed upon in the
terms of the contract on
external and internal loans
In this method, debt payments
are made in advance in order to
save on state budget expenditures
and reduce the burden of future
expenditures.
CONCLUSION
At the current stage of reforms in the development
of New Uzbekistan, special attention is being paid
to transforming the country into an equal
participant in the international financial market
and obtaining a sovereign international credit
rating. By attracting financial resources from the
international capital market, Uzbekistan aims to
launch large-scale investment projects, address
social issues effectively, create additional new jobs,
and develop the institutional and organizational
foundations of the capital market.
The effective management of public debt is one of
the most pressing issues not only in our country
but also in many foreign states, as it plays a crucial
role in regulating the economy and ensuring sound
debt policy. Among the key tools for managing
public debt efficiently are the country's monetary,
credit, and fiscal policies. Proper implementation
of these policies by the government allows for the
effective use of public debt in both the short and
long term.
According to the methodology proposed by the
International Monetary Fund (IMF), the World
Bank, and other international documents, one of
the preliminary approaches to assess debt
sustainability is to calculate its ratio to Gross
Domestic Product (GDP). However, many
researchers argue that this indicator alone may not
adequately reflect the real state of external debt.
Therefore, they emphasize the necessity of using
additional macroeconomic indicators for a more
accurate evaluation. At the same time, comparing
the ratio of public debt to GDP with that of other
countries is recommended for assessing the debt
burden.
International research shows that, in addition to
establishing a single megaregulator for debt
management, it is essential to ensure integrated
cooperation among all relevant ministries involved
in the economic complex. This is because the
primary goal in managing public debt and
developing a debt strategy should be to enhance
efficiency based on the development of the
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economy’s various sectors in a comprehensive
manner.
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