Information on the thesis

The thesis is devoted to fundamentally conclude on the effects of foreign debt, to systematize different approaches to foreign debt modelling according to most famous economic schools, to estimate the benefits and shortcomings of debt restructuring agreement, which took place in August, 2015.

The thesis throws light on the fundamental factors of the foreign public debt usage outcomes, specifying the different policy features in successful countries like Norway or Eastern-Asian countries and in non-successful countries like in Latin America. It is proved that public debt accumulation can stimulate economic growth, but there are some risks to be taken into account.

The thesis characterizes the evolution of economic thought on foreign public debt. In particular it is shown that classical economists were against borrowings as it crowds out the investments in the long run due to increased interest rate whereas the Keynesian economists treated debt as an effective tool for the acceleration of economic growth. New Keynesian and new classical followers allow multiple effects.

The thesis put emphasis on the influence of foreign debt on balance of payments behavior. It’s shown that if borrowings are used for investment purposes it stimulates growth, savings and improves the current account balance. Otherwise, the increased demand for import worsens the current account, which devaluates currency.

The theoretical assumptions for Ukraine were tested using the VAR/VEC methodology. The results show that foreign public debt accumulation in Ukraine was caused by populistic factors to maintain the consumption expenditures to save the electorate support. It was also investigated that higher investments would cause foreign public debt eliminate.

While using the extended IS-LM-BP with the depended aggregate supply and aggregate demand on the exchange rate it was revealed that in the economy with the fixed exchange rate the stimulating influence of foreign borrowings weakens in case of tight correlation between money supply and price level. In the flexible exchange rate the range of income increase is lower as it’s crowded out by currency appreciation. The thesis emphasizes on the existence of significant balance sheets effects while servicing the foreign public debt.

While estimating the benefits and faults of debt restructuring in August, 2015 it was shown that it does good in some ways: reduces the external public debt burden in 2016–2018, stabilizes the exchange rate, improves the conditions for money control, but at the same time it includes important long-run risks in case of accelerated economic growth in 2021–2040.

In the thesis some scenarios of public debt servicing costs were calculated according to prognosticated trends of GDP growth. The results show that in case of moderate economic growth as in Poland or Argentina, annual payments in 2025–2030 can exceed 2 bln USD. Meanwhile, considering the very successful growth as in Chili, the overall payments vary between optimistic 22 and pessimistic 84 bln USD, which would mean either reviewing the terms of the agreement or debt buy-back.  Nevertheless the thesis reveals that it’s not worth expecting high growth in 2016–2020, as it’s not intrinsic to former Soviet Union countries.

Key words: public external debt, investments, interest rate, GDP, current account, restructuring, exchange rate.