Analysis of the threat level of the increase of the state debt in the
gross domestic product in ensuring the economic security of the
country.
Mamatov Akhmetjon
1
, Mamatov Mamajan
2
1
Tashkent Institute of Finance, Doctor of Economic Sciences, Tashkent city, Yunusabad dist. AMIR TEMUR avenue, 60 A
2
Tashkent state university of economics
phd associate professor, Tashkent city, Islama Karimova street 49
https://doi.org/10.5281/zenodo.10467692
Keywords:
Gross domestic product, state budget revenues and expenditures, external debt, debt burden, external debt
servicing costs, economic growth, crisis, econometric analysis, economic security.
Abstract:
The article examines the public debt in the GDP of the Republic of Uzbekistan, the cost of servicing the public
debt in the state budget revenues and their dynamics, and also, based on the method of econometric analysis,
reveals the relationship between the change in the share of public debt in GDP and the change in the level of
threats to the economic security of the country.
1 INTRODUCTION
One of the main reasons for the financial crises
occurring in the world in the context of the
globalization of the world economy is related to the
problems of foreign debt and its payment. It is not
difficult to observe that the ill-considered foreign debt
policy of many countries has left their economies
weak, dependent on external factors, vulnerable and
vulnerable to dangerous situations. Public debt is a
financial resource of the state obtained by issuing
securities from domestic and foreign financial
markets. Public debt is incurred when there is a
budget deficit.
Public debt has different effects on economic
growth in different countries. In particular, countries
such as South Korea and Japan had a large amount of
public debt in the 1950s and 1960s, but these debts
had also a positive effect on the recovery of the
economy and even its development. Furthermore, in
some countries, especially in Indonesia, the public
debt did not give its results and hindered the
economic growth. Similar patterns can be observed in
many countries.
Public debt plays an important role in the
development of the economy of the Republic of
Uzbekistan. During its independent development,
Uzbekistan has always followed the principle of long-
term and preferential interest rates, abandoning short-
term speculative loans. In his address to the Oliy
Majlis (parliament), the President of the Republic of
Uzbekistan stated that “in the current complex
conditions in the world, we will consistently continue
an open and pragmatic foreign policy based on
mutual trust and respect [1]. In particular, from 2023,
in the management of public debt in relation to the
GDP, the goal is to ensure that the amount of newly
attracted external debt does not exceed 4.5 billion US
dollars per year [2].”
2 Background literature
That includes those foreign scientists such as
J.M. Keynes., D. North, A.B. Adams, E. Soto, Dj.
Forrester, S.P. Lee, Ya.L. Ngning, T. Blake, K.
Ogawa, M.F. Al-Refai, E. Kim, G.S. Becker and
others who have studied the impact of public debt on
the economy and its regulation.
Russian scientists V.V. Gerasimov, V.S.
Zagashvili, V.V. Volchik, N. V. Tseikovets, A.V.
Kolosov, E. Yu. Kolesnikov, M. Ya, Kornilov, Yu. V.
Latov,
D.D.Burkaltseva,
V.A.Bogomolov,
A.Prokhojev, M.Kornilov and others conducted
scientific research work on this topic.
The scientific-theoretical aspects of public debt
in the development of the economy of the Republic of
Uzbekistan and its effective management were
discussed by Abulqosimov Kh.P., Abdupakhmonov
K.Kh., Vakhobov A.V., Jo'raev T.T., Rasulev A.F,
Rasulev T.S. ., Vakhobov A.V., Olmasov A.,
Mamatov A.A., Asatullaev X.S., Tursunov B.O.,
Tokhtaboev J.Sh., G'aniev D.A., Urmonov J.J., Sh.R.
Qabilov and others conducted scientific research
work in this field.
Foreign scientists P. Zondi and S. Robinson
evaluated the impact of public external debt on
economic growth using the autoregressive distributed
lag model based on statistical data from 1994-2019.
According to the results of the analysis, the impact of
the state external debt on economic growth was
positive in the short term. However, in the long term,
the impact of public external debt on economic
growth was negative [3].
Russian scientists Prokhojev A., Kornilov M.
He assessed that security in the foreign economic
sphere
is
characterized
by
the
country's
competitiveness in the world market, the stability of
the national currency, the state's foreign debt, and the
state's financial situation [4]. Professor Bogomolov
V.A. expressed an opinion on the importance of
foreign debt in the country's economy, “The problem
of foreign debt requires constant monitoring, because
it can have a very serious negative impact on the
country's development in the long term. He points out
that Latin America's deep, protracted decline in
production and very high inflation caused the crisis
that took place for more than a decade, precisely
because of the large foreign debts”[5].
Among the economists from Uzbekistan D.A.
According to Ganiev, one of the positive aspects of
the state's domestic debt is the impetus for the
development of the domestic financial market.
Because government securities are highly liquid
assets, the demand for them is high in most cases[6].
According to the research conclusions of J. J.
Urmonov,
the development of energy, water supply,
transport
and
communication
infrastructures,
necessary for the population's living, production and
business, requires a large amount of state investment.
In the case of limited domestic opportunities, the
external debt of the state is directed mainly to
infrastructure, industrial and agricultural projects
[7].
From the opinions and analyzes of the above
scientists, we can see that the impact of public debt
on economic growth depends firstly on its size and
secondly on its source.
2.1 Research methodology.
The article includes
dialectical, systematic,
integral and synergetic approaches, economic,
logical, scientific abstraction, analysis and synthesis,
modeling of economic processes and systems, table,
comparison, generalization, grouping, graphic,
econometric modeling methods were used
Analysis and discussion of results
One of the threats to the institutional
foundations of the country's economic security is in
the country's GDP, which is a threat
related to the
growth of the state debt and the change in the share of
its service costs in the state budget revenues. As we
may know, the country's economy requires additional
capital for its financial improvement and economic
development. If government spending exceeds tax
revenues, it will lead to a budget deficit, which will
have to be financed by borrowing from the domestic
sector or international governments. An increase in
the share of public debt in the country's GDP becomes
a public debt burden, which consists of internal and
external debts. Choosing the fastest and painless
methods of solving and managing the problem in the
context of the external debt crisis is of great scientific
and theoretical importance.
Despite the dynamics of the growth of public
debt in the Republic of Uzbekistan in recent years,
according to international standards, the public debt
of the Republic of Uzbekistan (40.4% of GDP),
including public external debt (36.5% of GDP)
remains at a moderate level. It should also be noted
that the International Monetary Fund assesses
Uzbekistan's foreign debt ratio of 55% to GDP as
moderate or stable. In addition, the Fitch Ratings
international rating agency rated Uzbekistan's long-
term credit rating at the “BB-“ (stable) level, which
means that the country has the potential to attract
additional foreign funds.
As of July 1, 2022, the total state debt of
Uzbekistan is 25.9 billion USD, of which 23.2 bln.
dollars is the state's external debt. The public debt is
attracted in the following directions: 6 billion to
support the budget, 5.6 billion to the fuel and energy
sector, 2.5 billion for transport and transport
infrastructure, 2.4 billion for agriculture and water
industry, 2.2 billion for housing and communal
services, 1.5 billion to support business activities, 1.1
billion for the chemical industry, 700 million to
support the education and health sectors, and 1 billion
for other strategic and socially important projects.
By the end of 2020, the total debt of the
countries of the world was 97.6% of GDP (83.5% in
2019). According to the International Monetary Fund,
the total amount of debt is 89.6 trillion dollars. It was
predicted that this indicator would be 99.5 percent of
GDP in 2021 . The debt of the EU countries was
102% of the GDP, and in 2020, the total GDP
decreased by 14%
[8]
.
The increase in external debt is certainly a
negative situation, but in the context of the global
crisis and the pandemic, even some countries that are
powerful in financial sense had to borrow money
from international financial institutions.
The question
is whether the increase in public debt in developing
countries will help economic growth or become a
burden for future generations to pay.
According to S. P. Lee and Ya. L. Ng, foreign
scientists, the existence of a high amount of public
debt can have a negative impact on economic
development [9]. T. Blake used the ARDL approach
to study the effect of public debt on economic growth
in Jamaica from 1990 to 2014 and found that debt has
a negative effect on economic growth[10]. A study
conducted by E. Kim et al. found a negative
relationship between public debt and economic
growth in 77 countries from 1990 to 2014[11]. M.F.
Al-Refai (1990-2013) used the ordinary least squares
(OLS) method to study the impact of public debt on
the Jordanian economy. According to him, domestic
debt and gross fixed capital formation have a positive
effect on economic growth in Jordan, but long-term
external debt has a negative effect on economic
growth in Jordan[12].
In our research, since the measurement units of
the data included in the multifactor econometric
model covering the period from 2017 to 2022 in
Uzbekistan
were
different,
they
were
all
logarithmized and brought to a single measurement
unit. Empirical analysis uses the logarithm of GDP
and debt. The model is estimated using annual data.
𝐿𝑛𝑌𝐼𝑀 = 𝛽
0
+ 𝛽
1
𝐿𝑛𝐷𝑄 + 𝛽
2
𝐿𝑛𝐵𝑋 + 𝛽
3
𝐿𝑛𝑇𝑄𝑋𝐾
+ 𝜀
𝑡
Public debt is a dependent variable on the
logarithm of Gross Domestic Product (GDP) in this
model. Whereas public debt (GDP) is an indicator
expressed as debt to GDP, which allows determining
the direct impact of public debt on economic growth.
The impact of the debt burden on GDP is determined
by including many variables, such as budget
expenditure (DB), external debt service (DFS). The
problem under consideration was solved using the
STATA program.
Table 1
Descriptive statistics results for factors
LnGDP
LnDQ
LnBX
LnTQ
XK
Mean
3.841995
3.4462
09
2.4466
27
-
0.0711
5
Standard
error
0.224312
0.1207
01
0.1551
53
0.2054
47
Median
4.040277
3.5143
67
2.5040
33
-
0.0824
4
Standard
deviation
0.549449
0.2956
56
0.3800
47
0.5032
4
Kurtosis
-0.05232
1.1366
31
0.7376
01
-
1.1715
2
Skevness
-1.04274
-
1.2028
3
-
0.8501
8
0.2039
88
Interval
1.447852
0.7850
49
1.0776
98
1.3350
01
Minimum
2.939162
2.9285
24
1.8115
62
-
0.6931
5
Maximum
4.387014
3.7135
72
2.8892
6
0.6418
54
Sum
23.05197
20.677
25
14.679
76
-
0.4268
9
The average value (mean), median, maximum
and minimum values of each factor can be seen from
the table data. Other than that, the standard deviation
of each factor (std. dev. (Standard Deviation) - the
coefficient of standard deviation shows how much
each variable deviates from the average value) is
presented.
Skevness is a coefficient of asymmetry, and if it
is equal to zero, it means that the distribution is
normal and the distribution is symmetrical. If this
coefficient is significantly different from 0, then the
distribution is asymmetric (that is, not symmetrical).
If the coefficient of asymmetry is greater than 0, that
is, positive, then the normal distribution graph for the
studied factor is shifted to the right. If it is less than 0,
that is, it is negative, then the normal distribution
graph for the studied factor is shifted to the left. It can
be seen that the asymmetry coefficients of all factors
for the processes we are studying are less than zero
(Table 1) and the function graphs are shifted to the
left (Figure 1). These shifts mainly indicate changes
in the dynamics of the studied factors. In some years,
some factors had a sharp increase, while others did
not change significantly.
Figure 1. 2017-2022 during state debt with
budget expenses graphic analysis
As can be seen in the graph, the budget
expenditure is increasing in relation to the public
debt, and the increase in the public debt has decreased
after 2020.
Table 2
Correlation matrix between factors
Two types of correlation coefficients can be
determined from the data in Table 2: individual and
pairwise correlation coefficients.
Specific correlation coefficients reflect the
individual correlation of the resulting factor (lnGDP)
with each influencing factor. Pairwise correlation
coefficients reflect relationships between influencing
factors.
It can be seen that the relationship between GDP
(lnGDP) and Public Debt (lnDQ ) is 0.6950. This
shows that these indicators are high. Also, there is an
above-average relationship between GDP (lnGDP)
and budget expenditures (BDP) relative to GDP, that
is, the private correlation coefficient between them is
equal to 0.7774. Gross Domestic Product (lnGDP)
and there is an above-average relationship between
external debt service (DFS) . The private correlation
coefficient between these factors is equal to 0.8581.
The values of the pairwise correlation
coefficients in the correlation matrix show that there
is no multicollinearity between the studied
influencing factors. That is, the values of pairwise
correlation coefficients between influencing factors
are less than 0.6. This is the basis for including all
factors in a multifactor econometric model.
Calculated values based on here are an analytical
view of the multifactor econometric model:
𝐿𝑛𝑌𝐼𝑀 = 6,267 − 0.762𝐿𝑛𝐷𝑄 + 0.119𝐿𝑛𝐵𝑋
+ 1.252𝐿𝑛𝑇𝑄𝑋𝐾
The calculated multifactor econometric model
shows that the increase in the size of the public debt
(DQ) has a negative effect on the growth of the Gross
Domestic Product (lnGDP). An average increase of
one percent of budget expenditures (BSE) and
external debt service (DFS) relative to GDP leads to
an increase of the Gross Domestic Product (lnGDP)
by 0.119 and 1.252 percent, respectively.
Now, in our research, we will analyze how the
increase in the share of public debt in the country's
GDP and the change in the share of its service costs
in the state budget expenditures affect the level of
economic security of the country. In the world
experience, the percentage share of public debt
servicing costs in the state budget revenues is
expressed in coefficient indicators from 1 to 10. This
amount represents a change from 1 to 10, a change in
the share of public debt service expenses in the state
budget revenues, a threat to the level of economic
security of the country, i.e. if there is a coefficient of
1 it is equal to a 10% threat level, if there is a
coefficient of 10 it is equal to a 100% threat level. For
example, in 2021 in the Russian Federation, this
indicator was equal to 10.5 coefficients[13]. So, in
2021, the growth of the state debt in the Russian
Federation and the change in the share of its service
costs in the state budget revenues indicate that the
level of threat to the economic security of the country
is equal to 105%.
Based on the data of the "Open budget" portal of
the Republic of Uzbekistan, we calculated the data on
the public debt in % of GDP in the Republic of
Uzbekistan in 2017-2022, the public debt service
costs (billion soums) and the share of public debt
service costs in the state budget revenues (see Table
3 see).
Table 3
Analysis of the risk impact of changes in the
ratio of public debt to GDP on the country's
economic security
[14]
No
GDP
(billi
on
sou
ms)
State
debt
(billio
n
soums
)
Pub
lic
debt
to
GD
P in
%
Public
debt
servic
ing
costs
(billio
n
soums
)
Share
of
public
debt
servic
ing
costs
in
state
budge
t
reven
ues
To
the
economi
c security
of
the
state
level of
apprehen
sion
20
17
317
476.
4
59368
, 1
18.7
3129.
9
6.3
63%
20
18
426
641.
0
12073
9.4
28.3
5220.
5
6.6
66%
20
19
532
712.
5
15821
5.6
29.7
7739.
4
6.9
69%
20
20
605
514.
9
23615
0.8
39.0
9438.
6
7.1
71%
20
21
738
425.
2
28060
1, 6
38.0
12515
.7
7.6
76%
20
22
888
341.
7
36422
0, 1
41.0
15947
.2
7.9
79%
From the data of the table, it can be seen that in
the Republic of Uzbekistan, the cost of servicing the
state debt in 2017 was 3129.9 billion. from soums,
15947.2 billion by 2022 . increased to soums, and as
a result, the share of public debt service expenses in
state budget revenues changed from 6.3 to 7.9,
respectively. This shows that the level of threat to the
economic security of the state has increased from
63% to 79% today.
CONCLUSIONS
Based on the econometric analysis, we made the
following conclusions:
•
GDP (lnGDP) and Public Debt (lnDQ) is
0.6950. This shows that these indicators are high
among;
•
As the growth of the public debt (DQ) has a
negative impact on the growth of the Gross Domestic
Product (lnGDP). An average increase of one percent
of budget revenues (BD) and external debt service
(DFS) relative to GDP leads to an increase of the
Gross Domestic Product (lnGDP) by 0.119 and 1.252
percent, respectively;
•
In the Republic of Uzbekistan
,
the share of
public debt service costs in the state budget revenues
will increase from 6.3 in 2017 to 2022
increased to
7.9. This shows that the level of threat of the state debt
to the economic security of the State has increased
from 63% to 79%.
•
The increase in the level of public debt threat
to the economic security of the state from 63% to 79%
means that the Republic and local state executive
authorities in Uzbekistan should develop appropriate
measures to reduce its growth.
In conclusion, in the context of the globalization
of the world economy, in order to ensure the
economic growth of the state and optimize the state
debt, the following is proposed:
•
in order to prevent economic crises
occurring in the world economy, pandemics and
economic crises arising as a result of military
operations, attracting foreign loans at reduced
preferential rates as a means of reducing the state
budget deficit;
•
to increase the transparency of budget
revenues and ensure the efficiency of expenditures,
reduce the external debt of the state, increase tax
revenues by reducing the scale of the hidden
economy, and improve tax administration;
•
Increasing
the
weight
of
sovereign
international bonds of the Republic of Uzbekistan,
especially national currency sovereign international
bonds, in international financial markets;
•
Development
of a
methodology
for
determining the safe level of public debt relative to
GDP (60 percent) and determining its optimal
amount.
Summing up from the above, borrowing should
be aimed at improving the socio-economic situation
of the country, ensuring economic growth, reducing
the budget deficit, improving infrastructure facilities,
providing social support to the population, and
creating a favorable investment climate for
entrepreneurship. It will be necessary to develop
mechanisms to control borrowing and its targeted
spending without exceeding the established economic
standards. Because the debt burden should not hinder
the development of the future generation and serve
development.
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