An Enquiry into the Main Determinants of Public Debt in Jordan: An Econometric Studyxxx

Majed Bader, Ihab K. Magableh


The high public debt in Jordan, along with its servicing burden, is clearly hindering the government's efforts to achieve higher and sustained economic growth rates. Both central government domestic debt (DD) and the outstanding balance of external public debt (ED) have increased dramatically during the period 1980-2005 in spite of the government debt management policies and privatization. The determinants of public debt should be analyzed in order to determine the key players in public debt accumulation. In this study, the chronic government budget deficit, the savings gap, the size of foreign aids, and the real exchange rate are examined for their role on debt accumulation. The results are in harmony with expectations. The government budget deficit, savings gap and real exchange rate significantly affect ED, but real exchange rate is the most effective. These factors, don’t only decrease the government's ability to repay the debt service of the outstanding balance of public debt but also create an additional demand for new domestic public loans. Motivating domestic savings and controlling the fiscal position may help to slow down debt accumulation and debt burden. Finally, stability of the value of the Jordanian Dinar is a must if the government intends to break the unplanned growth in public debt.


External Debt, Internal Debt, Jordanian Economy

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