Government finances and financial shocks in developing countries
14 June 2017
University of Antwerp, Stadscampus, Promotiezaal Grauwzusters - Lange Sint-Annastraat 7 - 2000 Antwerpen (route: UAntwerpen, Stadscampus
Prof Danny Cassimon
Prof Romain Houssa
PhD defence Kelbesa Megersa - Faculty of Applied Economics
Among the biggest challenges faced by developing countries today is the management of government finances and various financial shocks emanating from their domestic economy and external sources. The gains and adverse impacts of financial globalization are being witnessed both in developing countries at ‘early’ as well as ‘advanced’ stages of financial development. Growth in the demand and supply of external financial flows - in the era of increased global financial instability and repetitive crisis - underscores the need for public debt management by governments across the developing world. Maintaining sustainable levels of public debt brings overall financial stability and also makes countries less vulnerable to the damage from unforeseen shocks - as they will have the fiscal space for necessary policy responses.
In line with this, this essay tries to answer the following questions: 1) How can developing countries balance ‘public spending’ with ‘debt sustainability’ — and does the quality of institutions and public sector management play a role? 2) How can developing countries ‘foresee’ financial crisis and better prepare themselves to minimize their vulnerability? 3) What is the nature and extent of developing countries’ vulnerability to external financial shocks — particularly to recent monetary policy experiments in advanced countries?
However, the answer to these questions is rather complex and depends on various domestic and external factors. The essay addresses them by presenting its discussions through three (analytical) chapters assembled across the aforementioned research queries.