Fiscal Space, Public Debt Sustainability and Economic Growth: Empirical Inference from the MINT Countries

Abstract This study explored the effect of fiscal space and public debt on economic growth in Mexico, Indonesia, Nigeria, and Türkiye (MINT) countries using data from 2000 to 2024. The study proceeded to establish sustainable debt level for the MINT countries as a whole. With the panel autoregressive distributed lag (PARDL) model estimation technique, our findings show that while fiscal space (measured by deficit-GDP ratio) exerts significant positive effect on the economic growth of the MINT countries, debt sustainability (measured as the debt-GDP ratio) exerts significant negative effect on economic growth of the growth. The estimate shows that a 1% increase in debt results to about 0.1227% and 0.2979% decrease in the economic growth of the MINT countries in the long run and short run respectively. On the country-specific level, the PARDL model shows that though all the MINT countries experience negative effect of debt on economic growth, the greatest negative impact is being felt by Türkiye. From the smooth transition regression analysis, a threshold debt-GDP ratio of 21.30% was established for the MINT countries. Operating below this threshold level yield positive effect on economic growth while operating beyond this threshold level reduces economic growth significantly by about 0.4627% on average. This therefore calls for fiscal sustainability practices for the MINT countries. It was recommended that these countries should stick to the established threshold of debt-GDP ratio in order to reap the gains of borrowing for growth. Keywords: Public debt, fiscal deficit, economic growth, threshold analysis, fiscal sustainability