An Investigation of Debt Sustainability issue in Gabon

Abstract

The literature dealing with the issue of fiscal deficit sustainability (government's solvency) starts first with the great contribution of Hamilton and Flavin (1986), and further development by Wilcox (1989), Trehan and Walsh (1991), Hakkio and Rush (1991), Buiter and Patel (1992), Tanner and Liu (1994), Bohn (1995), Wu (1998), Makrydakis et.al., (1999). The issue of debt sustainability analysis (DSA) highlights principally three main theoretical approaches in the literature: 1) Debt Ratio analysis; 2) the Present Value Constraint (PVC); and 3) the Accounting Approach. Using the present value constraint framework (PVC), our research follows the studies developed by Trehan and Walsh (1991), Hakkio and Rush (1991), and Bohn (1995) which have gained significant devotion in the macroeconomics literature. Hence, using yearly fiscal series data of Gabon over the period from 1980 to 2020, our study uses the stationarity and co-integration approach to investigate the issue of public debt sustainability in Gabon. We first apply the stationarity tests on the following fiscal series: government debt, fiscal balance, government revenue, expenditure, and as well as the ratio to GDP of the mentioned series before using the co-integration tests on government revenue and expenditure. The empirical findings highlight globally the non-stationarity of fiscal series while the Johansen co-integration tests don't show any long-run correlation between the government revenue and expenditure indicating the non-sustainability of Gabonese public debt.