Construction of a Composite Indicator for Debt Sustainability Analysis
A Case of Sub-nationals in India
DOI:
https://doi.org/10.55763/ippr.2024.05.02.002Abstract
The size of fiscal deficits and sustainability of public debt levels remain a key macroeconomic policy problem in all emerging economies following the global financial crisis of 2008-09. In addition, the COVID-19 pandemic poses a considerable challenge to fiscal sustainability in developed and developing countries. Although the sustainability of public finances has been discussed for more than a century and studies have proposed several methods to define and assess debt sustainability, it remains an imprecise concept. This study proposes a new framework for public debt sustainability analysis by constructing a composite indicator, that is, a debt sustainability index. We emphasise the need for an explicit conceptual framework for constructing a composite index and usefulness of multivariate statistical analysis prior to the aggregation of individual indicators. The proposed approach can be used to analyse the debt sustainability of state governments (sub-nationals) in India.
Keywords:
Composite Indicator, Debt Sustainability Analysis, Principal Components and Factor Analysis, Sub-sovereign DebtDownloads
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