Public Debt Sustainability and Its Macroeconomic Implications in ASEAN-4

Abstract

Public debt levels in Indonesia, Malaysia, Thailand and the Philippines (the ASEAN-4) significantly exceed pre-Asian crisis levels due to persistently large fiscal deficits and bank re-capitalisation measures. This article algebraically derives key formulae and presents graphical techniques for understanding and assessing the sustainability of public debt and its macroeconomic significance. Using recent data, it shows that central government public debt levels have recently stabilised in the ASEAN-4 under prevailing macroeconomic conditions and fiscal settings. Yet, the Philippines and Indonesia still require substantially higher primary surpluses to reduce their public debt to GDP ratios to internationally recommended levels over the medium term.