The impact of efficiency in public dept management on macroeconomic performance of OECD countries

Deregulation of capital flows following globalization has increased the risk exposure of public debt portfolio, and posed a risk on macroeconomic balance. Such a structure triggering economic and financial instability has encouraged efforts to take a more professional and effective approach in public debt management. The efficiency in public debt management is a process of strategy development and executive to meet public sector financial needs at low cost and controllable risk level. While the existence of debt management policies which are inefficient and non-legal within framework creating pressure on public finance, the growing borrowing trend leads to disruption in macroeconomic balance. The study examined the impact of efficiency in public debt management on macroeconomic performance based on the periods 1995-2017 for 35 OECD countries and 2004-2017 for 26 OECD countries by using panel data analysis. As result of econometric analysis, the study found that increase in public debt burden affected growth in a negative way, and increased unemployment, inflation and budget deficit. On the other hand, increase in interest burden that has a positive impact on growth created a pressure to reduce inflation while increasing unemployment rate and budget deficit. When the study analyzed the relationship between unemployment and long term interest rates in public borrowing which had no statistically significant relationship with all macroeconomic indicators except unemployment, it found that increase in long term interest rates reduced unemployment. As for the relationship between macroeconomic indicators and short term interest rates in borrowing, the study came to the conclusion that an increase in short term interest rates pushed up inflation and budget deficit, had a negative effect on economic growth, and decreased unemployment. There was no significant relationship between public external debt burden and macroeconomic indicators, and improvement in budget balance had a positive impact on growth and employment. Also, findings obtained from the panel Granger causality test of Dumitrescu and Hurlin (2012) demonstrated the existence of unilateral and bilateral causality relationship between the variables. Keywords: Public Debt Management, Efficiency in Debt Management, Panel Data Analysis, Macroeconomic Performance Indicators