ISSN: 2225-8329
Open access
This study investigates the impact of Sovereign Asset and Liability Management (SALM) on efficient debt management in Jordan, addressing a significant gap in the literature regarding SALM application in developing economies. Using quarterly data from 2005 to 2023, we employ advanced econometric techniques, including Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL (NARDL) models, to analyze both short-run and long-run dynamics, as well as potential asymmetric effects. The research examines the relationships between various SALM components (cash reserves, foreign reserves, equity in state-owned enterprises, future revenues, government debt, fiscal expenditures, and contingent liabilities) and debt management efficiency, measured by the debt-to-GDP ratio. Our findings reveal complex and often asymmetric relationships between SALM components and debt management efficiency. Notably, we find significant long-run effects of cash reserves, foreign reserves, government debt, and contingent liabilities on the debt-to-GDP ratio. The study also uncovers asymmetric effects of equity in state-owned enterprises, future revenues, and fiscal expenditures, indicating that increases and decreases in these variables have differing impacts on debt management efficiency. These results provide valuable insights for policymakers and debt managers in Jordan and similar developing economies, emphasizing the importance of a holistic approach to public financial management that considers both assets and liabilities simultaneously. The study contributes to the growing body of literature on SALM by providing empirical evidence of its impact in a developing country context and highlighting the need for integrated approaches to sovereign debt management.
Adom, P. K., Kwakwa, P. A., & Amankwaa, A. (2020). The long-run effects of economic, demographic, and political indices on actual and potential GDP of Africa. Journal of Economic Studies, 47(3), 661-685.
Afonso, A., & Jalles, J. T. (2013). Growth and productivity: The role of government debt. International Review of Economics & Finance, 25, 384-407.
Agur, I., Ari, A., & Dell'Ariccia, G. (2021). Designing central bank digital currencies. Journal of Monetary Economics, 125, 62-79.
Aizenman, J., & Lee, J. (2007). International reserves: precautionary versus mercantilist views, theory and evidence. Open Economies Review, 18(2), 191-214.
Aizenman, J., & Marion, N. (2003). The high demand for international reserves in the Far East: What is going on? Journal of the Japanese and International Economies, 17(3), 370-400.
Aizenman, J., & Marion, N. (2004). International reserve holdings with sovereign risk and costly tax collection. The Economic Journal, 114(497), 569-591.
Aizenman, J., Jinjarak, Y., & Park, D. (2013). Capital flows and economic growth in the era of financial integration and crisis, 1990–2010. Open Economies Review, 24(3), 371-396.
Alesina, A., & Passalacqua, A. (2016). The political economy of government debt. Handbook of macroeconomics, 2, 2599-2651.
Alesina, A., & Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. The Review of Economic Studies, 57(3), 403-414.
Alshyab, N., & Khasawneh, A. (2019). Debt composition and economic growth: The case of Jordan. International Journal of Economics and Financial Issues, 9(3), 12-20.
Amante, A., Anderson, P. A., Jonasson, T., Kamil, H., & Papaioannou, M. G. (2019). Sovereign asset and liability management in emerging market countries: The case of Uruguay. IMF Working Paper, 19/290.
Barro, R. J. (1979). On the determination of the public debt. Journal of Political Economy, 87(5), 940-971.
Beetsma, R., Giuliodori, M., & Sakalauskaite, I. (2018). Long-term interest rates and public debt maturity. Economica, 85(339), 632-660.
Bekaert, G., & Hodrick, R. (2017). International financial management. Cambridge University Press.
Benmelech, E., & Tzur-Ilan, N. (2020). The determinants of fiscal and monetary policies during the Covid-19 crisis. NBER Working Paper No. 27461.
Blanchard, O., Chouraqui, J. C., Hagemann, R. P., & Sartor, N. (1990). The sustainability of fiscal policy: New answers to an old question. OECD Economic Studies, 15, 7-36.
Blommestein, H. J., & Koc, F. (2008). Sovereign asset and liability management: Practical steps towards integrated risk management. Financial Market Trends, 2008(1), 225-244.
Blommestein, H. J., & Turner, P. (2012). Interactions between sovereign debt management and monetary policy under fiscal dominance and financial instability. OECD Working Papers on Sovereign Borrowing and Public Debt Management, No. 3.
Bohn, H. (1990). Tax smoothing with financial instruments. The American Economic Review, 80(5), 1217-1230.
Bohn, H. (1998). The behavior of U.S. public debt and deficits. The Quarterly Journal of Economics, 113(3), 949-963.
Bova, E., Ruiz-Arranz, M., Toscani, F. G., & Ture, H. E. (2019). The impact of contingent liability realizations on public finances. International Tax and Public Finance, 26(2), 381-417.
Bova, E., Ruiz-Arranz, M., Toscani, F., & Ture, H. E. (2016). The fiscal costs of contingent liabilities: A new dataset. IMF Working Paper No. 16/14.
Brooks, C. (2019). Introductory econometrics for finance. Cambridge university press.
Bussiere, M., & Mulder, C. (1999). External vulnerability in emerging market economies: How high liquidity can offset weak fundamentals and the effects of contagion. IMF Working Paper, 99/88.
Cangoz, M. C., Boitreaud, S., & Dychala, C. B. (2018). How do countries use an asset and liability management approach? A survey on sovereign balance sheet management. World Bank Policy Research Working Paper, 8624.
Cherif, R., & Hasanov, F. (2018). Public debt dynamics: The effects of austerity, inflation, and growth shocks. Empirical Economics, 54(3), 1087-1105.
Clark, G. L., & Monk, A. H. (2011). Sovereign wealth funds: Form and function in the 21st century. Foundations and Trends in Finance, 5(1), 1-93.
Clements, B., Dybczak, K., Gaspar, V., Gupta, S., & Soto, M. (2019). The fiscal costs of contingent liabilities: A new dataset. IMF Working Paper, 19/211.
Consiglio, A., & Staino, A. (2012). A stochastic programming model for the optimal issuance of government bonds. Annals of Operations Research, 193(1), 159-172.
Creswell, J. W., & Creswell, J. D. (2017). Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.
Das, U. S., Lu, Y., Papaioannou, M. G., & Petrova, I. (2012). Sovereign risk and asset and liability management—Conceptual issues. IMF Working Paper, 12/241.
Eichengreen, B., & Mody, A. (2000). What explains changing spreads on emerging market debt? In Capital flows and the emerging economies: Theory, evidence, and controversies (pp. 107-134). University of Chicago Press.
Emara, N., & El Said, A. (2021). Sovereign ratings, foreign direct investment and contagion in emerging markets: Does being a BRICS country matter? International Journal of Finance & Economics, 26(2), 2470-2487.
Emran, M. S., & Farazi, S. (2009). Lazy banks? Government borrowing and private credit in developing countries. Institute for International Economic Policy Working Paper Series.
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
Froot, K. A., Scharfstein, D. S., & Stein, J. C. (1993). Risk management: Coordinating corporate investment and financing policies. The Journal of Finance, 48(5), 1629-1658.
Grimes, A. (2001). Crown financial asset management: Objectives and practice. New Zealand Treasury Working Paper 01/12.
Guscina, A., Pedras, G., & Presciuttini, G. (2014). First-time international bond issuance—New opportunities and emerging risks. IMF Working Paper, 14/221.
Huijben, T., Frost, J., & van Tilburg, R. (2019). Managing the sovereign balance sheet: Lessons from New Zealand. De Nederlandsche Bank Working Paper No. 639.
Irwin, T. C., & Mokdad, T. (2010). Managing contingent liabilities in public-private partnerships: Practice in Australia, Chile, and South Africa. World Bank Publications.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
Kling, G., Lo, Y. C., Murinde, V., & Volz, U. (2018). Climate vulnerability and the cost of debt. SOAS Centre for Sustainable Finance Working Paper No. 12.
Koc, F. (2014). Sovereign asset and liability management framework for DMOs: What do country experiences suggest? UNCTAD Working Paper.
Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253-268.
Leal, T., Perez, J. J., Tujula, M., & Vidal, J. P. (2008). Fiscal forecasting: lessons from the literature and challenges. Fiscal Studies, 29(3), 347-386.
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
Melecky, M. (2007). A cross-country analysis of public debt management strategies. World Bank Policy Research Working Paper, 4287.
Melecky, M. (2012). Formulation of public debt management strategies: An empirical study of possible drivers. Economic Systems, 36(2), 218-234.
Merton, R. C. (1995). Financial innovation and the management and regulation of financial institutions. Journal of Banking & Finance, 19(3-4), 461-481.
Mishkin, F. S. (1999). Lessons from the Asian crisis. Journal of International Money and Finance, 18(4), 709-723.
Missale, A. (1999). Public debt management. Oxford University Press.
Missale, A. (2012). Sovereign debt management and fiscal vulnerabilities. BIS Paper, (65h).
Obstfeld, M., Shambaugh, J. C., & Taylor, A. M. (2010). Financial stability, the trilemma, and international reserves. American Economic Journal: Macroeconomics, 2(2), 57-94.
Panizza, U., Sturzenegger, F., & Zettelmeyer, J. (2010). International government debt. UNCTAD Discussion Papers 199.
Papaioannou, M. G. (2009). Exchange rate risk measurement and management: Issues and approaches for firms. South-Eastern Europe Journal of Economics, 7(2), 161-180.
Presbitero, A. F., Ghura, D., Adedeji, O. S., & Njie, L. (2016). Sovereign bonds in developing countries: Drivers of issuance and spreads. Review of Development Finance, 6(1), 1-15.
Reinhart, C. M., & Rogoff, K. S. (2009). This time is different: Eight centuries of financial folly. Princeton University Press.
Reinhart, C. M., & Rogoff, K. S. (2011). From financial crash to debt crisis. American Economic Review, 101(5), 1676-1706.
Reinhart, C. M., Reinhart, V. R., & Rogoff, K. S. (2012). Public debt overhangs: advanced-economy episodes since 1800. Journal of Economic Perspectives, 26(3), 69-86.
Rosenberg, C. B., & International Monetary Fund. (2005). Debt-related vulnerabilities and financial crises: An application of the balance sheet approach to emerging market countries. International Monetary Fund.
Saunders, M. N., Lewis, P., Thornhill, A., & Bristow, A. (2019). Research Methods for Business Students. Pearson Education.
Tobin, J. (1958). Liquidity preference as behavior towards risk. The Review of Economic Studies, 25(2), 65-86.
Wheeler, G. (2004). Sound practice in government debt management. World Bank Publications.
Wooldridge, J. M. (2016). Introductory econometrics: A modern approach. Nelson Education.
(Ibrahim & Aljaloudi, 2024)
Ibrahim, H., & Aljaloudi, M. (2024). The Impact of Sovereign Asset and Liability Management on Efficient Debt Management in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(3), 90–116.
Copyright: © 2024 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode