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Concerns about new debt restructuring episodes are on the rise as the measures necessary to combat the COVID-19 inflict harsh fiscal pressure. The decision to restructure debt is a particularly difficult one that countries should only seek as a last resort. An important question is; how can a country avoid ‘deceptive reputational risk’ whilst attempting to reduce the cost of debt? To address this question, this study investigates the effect of ‘deceptive reputational risk’ on the outcome of debt restructuring. That is, unintentional consequence of an increase in debt levels and the decline in gross domestic product (GDP), up to 10 years affect debt restructuring. The paper utilizes Fixed Effects Panel approach to study data for Greece, Italy, Cyprus and Ireland for the period of 2000-2020. The study finds that investments, interest rate on debt and stable exchange rates can aid in minimizing ‘deceptive reputational risk’. The findings are important addition to the literature on debt restructuring. To the best of the author’s knowledge, this study is the first to consider reducing deceptive reputation risk in fiscal policy through the use of macroeconomic variables – real effective exchange rate, interest rate on debt and investments.

Purpose This study takes a disaggregated approach to investigate the impacts of long-run GDP on changes in total government expenditure in the Eastern Caribbean Currency Union (ECCU) economies. An understanding of the relationship between changes in total government expenditure and GDP (by sector categories) is expected to provide a working tool to understand the growth debt nexus of Caribbean countries. The purpose of the paper is to use an auto regressive distributed lag (ARDL) and error correction model (ECM) to examine and analyse short- and long-run dynamics of disaggregated approach to both output and government expenditure in a dynamic model to identify the growth in the Eastern Caribbean Countries. Design/methodology/approach In an attempt to examine the long-run dynamics, data for the period 1970-2015 were used in an ARDL and ECM framework. The authors examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for the ECCU countries to establish and analyse short and long-run dynamics. Findings The results suggest that total fiscal expenditure and disaggregated expenditure including debt services have both positively and negatively contributed to economic growth in the agriculture, manufacturing and mining sectors. Among others, the study found that high national debt in the region resulted primarily from increases in government expenses and diminishing income sources. Originality/value This paper is the first to take a disaggregated approach to investigate the relationship between economic growth and government expenditure in the Eastern Caribbean States. The authors’ empirical results suggest that debt servicing reduces economic growth both in the short and long run. The greatest impact being felt in the mining and manufacturing sectors, namely, 1 per cent increase in debt service will bring about 7.90 and 1.67 per cent decrease in economic growth. These results offer fairly strong support to the view that expenditure share variables can weaken sectoral growth, and hence force the overall growth to decline.

PurposeThis study takes a disaggregated approach to investigate the impacts of long-run GDP on changes in total government expenditure in the Eastern Caribbean Currency Union (ECCU) economies. An understanding of the relationship between changes in total government expenditure and GDP (by sector categories) is expected to provide a working tool to understand the growth debt nexus of Caribbean countries. The purpose of the paper is to use an auto regressive distributed lag (ARDL) and error correction model (ECM) to examine and analyse short- and long-run dynamics of disaggregated approach to both output and government expenditure in a dynamic model to identify the growth in the Eastern Caribbean Countries.Design/methodology/approachIn an attempt to examine the long-run dynamics, data for the period 1970-2015 were used in an ARDL and ECM framework. The authors examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for the ECCU countries to establish and analyse short and long-run dynamics.FindingsThe results suggest that total fiscal expenditure and disaggregated expenditure including debt services have both positively and negatively contributed to economic growth in the agriculture, manufacturing and mining sectors. Among others, the study found that high national debt in the region resulted primarily from increases in government expenses and diminishing income sources.Originality/valueThis paper is the first to take a disaggregated approach to investigate the relationship between economic growth and government expenditure in the Eastern Caribbean States. The authors’ empirical results suggest that debt servicing reduces economic growth both in the short and long run. The greatest impact being felt in the mining and manufacturing sectors, namely, 1 per cent increase in debt service will bring about 7.90 and 1.67 per cent decrease in economic growth. These results offer fairly strong support to the view that expenditure share variables can weaken sectoral growth, and hence force the overall growth to decline.

This study contends that Caribbean countries cannot adequately surmount their fiscal and debt challenges in the absence of binding rules that are geared toward entrenching fiscal discipline, curbing fiscal procyclicality, and improving budget transparency and credibility. Distilling global lessons and taking due cognizance of Caribbean countries' idiosyncrasies, the paper explores key technical, operational and institutional issues in the design, implementation, and monitoring of fiscal rules that might be relevant for Caribbean countries that currently do not have legislated rules. Results from simulations carried out to determine welfare effects and the extent of volatility of key macroeconomic variables under various fiscal rules scenarios suggest that of the different types of simulated fiscal rules, expenditure rules perform best in terms of reducing macroeconomic volatility, and in that regard, appear to be the most welfare-enhancing. This is believed to be the first study to carry out such a simulation exercise for Caribbean countries. The findings of the study evince useful insights for policymakers on how to improve the design and conduct of fiscal policy for better fiscal and, by extension, development outcomes.