Debt sustainability in East Asia after the financial crisis

Author name: 
Huh HS
Jha R
Koo CM

For the East Asian countries, the total amount of government debt has risen sharply over the following several years in the wake of the Asian financial crisis. The purpose of this paper is to assess whether the current levels of government debt are sustainable for those severely attacked countries, namely, Korea, Malaysia, Indonesia, the Philippines, and Thailand. Under the inter-temporal budget constraint model, we test for fiscal sustainability and examine whether there was any discernible change in the behaviour of government debt following the Asian crisis. Empirical analysis indicates that the levels of government debt are not sustainable in all counties under study. It also shows that the crisis contributes significantly to push the government debt in excess of its sustainable level. This urges policy attention for fiscal consolidation.

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