Koffi Pokou, Kamogano Thuche and Lexi Sethlare

DOI: https://doi.org/10.6000/1929-7092.2019.08.107

Published: 24 December 2019

Abstract: The analysis of the Botswana government debt from 1960 to 2017 is made using the regime switching model. Results show that (i) the probability for the public debt to be in a situation of unsustainability conditionally is 95% (ii) the probability that public debt is in sustainable position while there is no crisis is 71%. The durations of the regimes are 23.467 in regime 1 or unsustainability regime and 2.547 in regime 2 or sustainability regime respectively. Since the probability for the public debt to be in crisis and to remain in crisis is extremely high, extreme precaution should be taken on capital markets as well as in the way the Central Bank deals with debt issues. Likewise, balanced budgets should always be the rule rather than the exception.

Keywords: Sustainability, Public Debt, Markov Switching Model.

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