Analyzing the Snowball Effect on Public Debt Dynamics and Its Determinants: The Case of North Macedonia
Analyzing the Snowball Effect on Public Debt Dynamics and Its Determinants: The Case of North Macedonia

Author(s): Gjorgji Gockov, Suzana Makreshanska Mladenovska, Goran Hristovski
Subject(s): Social Sciences
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Snowball effect; Public debt sustainability; North Macedonia
Summary/Abstract: Maintaining healthy public finances is essential for financial stability and economic growth. This study examines Macedonian public debt dynamics from 2002 to 2023, focusing on the primary budget balance, the interest-growth differential (snowball effect), and stock-flow adjustments. The snowball effect, where the debt ratio changes based on whether GDP growth surpasses or lags behind interest rates, is emphasized. Recent challenges include sluggish economic growth due to declining external demand and rising food and energy prices, coupled with increasing interest rates, exacerbating the snowball effect. Using the Ordinary Least Squares (OLS) method, the study analyzes how macroeconomic variables like foreign direct investment, trade openness, and unemployment, alongside institutional factors such as government effectiveness and corruption, influence debt dynamics. Policy recommendations stress the need for enhanced fiscal discipline, measures to stimulate economic growth, and improved institutional frameworks to mitigate the adverse effects of the snowball effect on public debt.

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