Reflection of public debt in financing deficit, capital investments and economic growth in Kosovo and level comparison with other countries

- In this paper, we present the processes of public debt development in Kosovo for the period of its functioning, respectively from 2009 until 2018. There is no long history of it, but there is a dynamic constant growth. The methodology used in this paper is based on empirical study analysis, and the scientific literature we have elaborated has found that many thinkers who support public debt with arguments justify this non-fiscal instrument to finance the budget deficit as well as some others who object it. In addition to the international debt with 42% share, in 2012, the domestic debt began to function, with securities issuing at 58%. Along with the country's economic growth, we have also increased budget, and GDP growth. While every year we have an average economic growth of 3.2% to 3.5%. In 2013, compared to 2012, the budget increase is 1.96%, in 2016 compared to 2015 is 7%. In 2017 compared to 2016 we have a growth of 8.31%. In 2009, the debt-to-GDP ratio had a share of 6.12%, in 2014 it reached 10.65%, in 2017 the share of debt to GDP (GDP) was 16.63% and in Q3 of 2018 it was 16.92 %. In the countries of the region and the European Union we have different levels. Most states have a high level of debt to GDP.The study of the literature review was carried out using selected four databases containing publications. Research has been done to find out how much the public debt level is based on the specifics of the economy and fiscal policy in Kosovo. In addition to the dynamics of public finance development, public debt has also been realized.


INTRODUCTION
Public debt encompasses all the liabilities that are debt instruments owed by governments and public administrations, public companies and other economic subjects of nations (Barro, 1979). Public debt is also a vital instrument for governments to finance public expenses, especially when it is difficult to increase taxes and/or reduce expenditure (Gnegne and Jawadi, 2013;Coccia M. 2018). However, a high public debt is also a critical problem for countries with weak economic system because it may generate economic instability and sovereign debt crisis (Domar, 1944;Hall and Taylor, 1993;Amaral and Jacobson, 2011). A high public debt and a large fiscal deficit are common features among countries in Europe (Tamegawa, 2016). There are many channels through which public debt might affect economic output either positively or negatively. The most frequently cited negative effect is the crowding out of private investments (Elmendorf and Mankiw 1999). A further adverse effect is macroeconomic vulnerability. Two major positive effects of public debt are the Keynesian effect and the hysteresis effect, which refer to the ability of expansionary fiscal policy to mitigate both the actual rate and the natural rate of unemployment during recessions (DeLong, J. B., and L. H. Summers. 2012; Dombi Á. & Dedák I.2018). To sum up, the main message of economic theory is that the debt-growth nexus is country-and time-specific, being conditional on several factors, such as the business cycle and institutional quality (Krugman, P. 2012; Reinhart, Rogoff, and Savastano 2003). This conditionality of the debt-growth nexus is also confirmed by the latest empirical results (Eberhardt, M., and A. F. Presbitero. 2015; Dombi Á. & Dedák I.2018). The argument that accumulation of public debt (fiscal deterioration) has a negative impact on economic growth was made in the studies by Reinhart et al. that concern public debt overhang (Reinhart, Reinhart andRogoff, 2012, andReinhart andRogoff, 2010). Reinhart, Reinhart and Rogoff (2012) reviewed 26 cases of high accumulation of public debt in advanced countries and reported that in 23 of those cases, economic growth remained stagnant for more than a decade. What is notable about their findings is the presence of a non-linear relationship between public debts and economic growth (Kobayashi K.2015). If there is a cause-and-effect relationship of a decline in economic growth increasing public debts but not of a public debt increase lowering economic growth, the correlation between a public debt increase and a decline in economic growth would be observed regardless of the size of the public debt ratio. However, according to the available data, such a correlation is not observed when the public debt ratio is small Kobayashi K. (2015). On the other hand, Bob Rubin and Allen Sinai have pointed out that the major negative consequences of ongoing budget deficits occur suddenly (Orszag, Peter R; Fellow, Pechman, Joseph A. 2004) Thus, the ongoing deficit is a burden for more generations, government spending is not controlled, economic and social problems are repaired. Well-known researchers: Cukiierman and Meltzer (1989) regarding deficit, developed the theory of debt redistribution. They point out that the growth of the deficit and the expected rate of economic growth are based on the distribution of income with a tendency to increase the population's longevity, and consequently, the heirs will lead to large budget deficits (Hung, Derek;Chiat, Chen 2003). Kosovo is granted the authority to "borrow funds, make loan guarantees, and to pay the principal and interest on its debt". The given law, additionally, provides The Ministry of Finance the stated authority, according to which, the Minister is vested as the sole entity to incur State Debt for the designated purposes (RK, 2019). As such, the given Ministry, under the given law, is delegated as the only institutional body to enter into State Debt. Moreover, if the state desires to ensure compliance with the given law to the fullest, the total amount of debt should not exceed the 40% of GDP (Trenovski, B., Tamara M.-S., 2018).

LITERATURE REVIEW
In relation to public views on public debt, many sources, many economists, financiers, and theoreticians, who deal with different aspects of this field, have a number of thinkers who support it and some others who oppose it. In the history of economic model studies, the names of the most well-known economists have been associated with this issue in various periods, from Ricardo, Smith, Keynes, and then to Friedman, Samuelson, Blanchard, Hamilton, Krugman, Coorsetti, Rubin and so on. In economics and science of public finances, there is hardly any area to be discussed as much as debating the role of public debt. The deterioration of the debt in many Western countries in the aftermath of the economic recession, over 2007-2008 period, has brought the spot light on the long-term effect of high public debts and economic policy of deficit reductions on the real economy (Coccia, 2013). There are three theories about the effects of budget deficits and public debt: Keynesian, neoclassical and Rikardian School. Their common characteristic is that they mainly discuss the situation of deficit occurrence due to the reduction in tax revenue, and not due to an increase in government spending (although the Keynesian school in the original version sees the effects of the increase in public spending to changes in employment and output, and later the effects of a decrease in tax revenues). In general, differences in attitudes about the deficit and public debt are resulting from different choices of assumptions underlying the models of different schools (Tempelman, 2005). The analysis of the evolution of public debts and of government deficits is important to European policy makers to design economic and financial measures for supporting the stability and growth over the long run (Equiza-Goñi, 2016; Paniagua, Sapena, & Tamarit, 2016). As a matter of fact, public debt is a vital instrument for governments to finance public expenses, especially when it is difficult to increase taxes and/or reduce the public expenditure (Gnegne & Jawadi, 2013). But the two different models have the same argument on the effects of fiscal policy on the level of GDP; whereas they are not the same on the effects of fiscal policy on economic growth. According to the theory of endogenous growth model, government plays a significant role in promoting accumulation of knowledge, research and development, productive public investment, human capital development. Law and order can generate growth both in the short-and long-run. Several attempts at regaining macroeconomic stability through fiscal adjustment achieved uneven success in developing countries, thus raising questions about the macroeconomic consequences of fiscal deficit. Much of the evidence in the literature has strong support for the view that the prior fiscal deficit caused debt crisis in many developing countries. However, the effects of fiscal deficits on debt depend strongly on the adopted financing methods and the country's macroeconomic conditions (Ogunmuyiwa, 2008 and2011). Boariu and Bilan (2007) also argued that public debt, as all other loans, is costly because government pays interest to their creditors as a price for using the temporary available resources. As a result of its characteristics, public debt can involve several undesired effects. The paper found that debt financing leads to the accumulation of public debt and to the increase in interest payments, which determines an increase in the budgetary expenses that states have to cover. According to Eminer (2015), an increase in a budget deficit will impact economic growth positively if the deficit is geared towards productive spending and negatively if it is geared towards non-productive spending. In any case, the term "productive spending" is relative, and dependent on the discretion of the policy maker. Also, the full realization of the impact of budget deficits is dependent on the duration (short or longrun) of the policy. Carl Dietezel largely supports the state's debt, among other things says that "public borrowing is a factor for strong economic progress(Heinz-Dieter Wenzel, Jörg Lackenbauer, Klaus J. Brösamle. 2005). David Hume in his paper reviewed the financial activity of the state, which devoted the basic care to the public lending activity, but which is a major opponent of public debt. But in practical life, Hjum's opinion falls down because all countries in the world apply public debt with the exception of one of them. The only country in the world that since 1980 does not receive financial resources on behalf of public debt is Singapore that in the public finance science circles is a case study. In this context, repeated debates are held that support it, it is argued that public debt is of great importance in stabilizing the budget, deficit financing and economic development. However, those, who oppose it, say that public debt is a heavy burden on the economy for future generations. In this regard, in the simplest sense, borrowing is provided to provide the means to finance government spending. This implies that in budget deficits, we have low taxes for current citizens but that a large part  Blanchard and Chouraqui (1990) consider that fiscal policy is stable when public debt is not caused by the factors that represent the dissatisfaction arising from governmental problems, so governments are not obliged to raise taxes, reduce spending, as a surplus the amount of currency in circulation or even deny public debt (Blanchard, O, et al. 1990).In their work, it is proven that US deficits

International Journal of Management Excellence Volume __ No.__ Month Year
The purpose of this paper is to address the role of public debt in Kosovo and its reflection on the development of economic and financial processes. As a result, it was decided to deal with the treatment of this financial sphere in order to increase the public's interest in this important and sensitive issue. Transitioning countries tend to control the budget deficit due to their high needs and often face numerous challenges. Public Debt in Kosovo began in 2009, and for that purpose, it is dealt with its impact and its role in economic growth and public goods delivery.

METHODOLOGY
The methodology used in this paper is based on empirical study analysis, and the scientific literature we have elaborated has found that many thinkers who support public debt with arguments justify this non-fiscal instrument to finance the budget deficit and some others who object it. Research has been done to find out how much the public debt level is based on the specifics of the economy and fiscal policy in Kosovo. In addition to the dynamics of public finance development, public debt has also been realized. Subsequently, we analyzed the debt structure in relation to the budget and GDP for the period from 2009 to 2018. In this study, we will also compare the level of public debt to GDP of Kosovo with the countries of the region and the European Union.

Dynamics of budget increase and public debt in Kosovo
The reforms developed in Europe and elsewhere in the 1990s found Kosovo in an unenviable position. As a result of occupation by Serbian aggression, the economy was plundered in succinct forms. In 1999, Kosovo was liberated, its economy was ruined. Although major changes have been made to the economic and political system, despite the consequences, there are positive trends in processes, economic development, construction and reform of the tax and budget system and public debt. Public debt is one of the non-fiscal instruments needed by the government to finance the budget deficit. Immediately after the war, the first four-month budget of 1999, 95% was funded by donors.    Table No.1, in 2013, compared to 2012, the budget increase is 1.96%, in 2016 compared to 2015 the growth rate is 6.9%. In 2017, compared with 2016, the increase is 8.31%. The budget deficit as a % of GDP calculated according to fiscal rules in 2012 is (-2.8%) in 2017 (-1.5%) and in the third quarter Q3 (Q3) of 2018 is (-1.7%). Sources of funds from the types of taxes, customs, excise, taxes, and non-tax revenues are not abundant, it is a necessity for the government to provide means through debt, which are transformed into tangible public goods.

Public development policy as a non-fiscal istrument
With the development and the state's role in the economy, public debt functions also grow. To carry out these functions, the government borrows internally as well as from international financial institutions and organizations. In

CONCLUSIONS
This study concludes that Kosovo has a low level of public debt relative to GDP and compared with the countries of the region and the member states of the European Union, and as a result of this policy, the Kosovo government has room and opportunity to increase its external and internal debt. Moreover, the financial means received from the government on behalf of the public debt have a positive impact on the overall economic growth and the completion of public goods in particular. Realization of new loans as a target should have the financing of projects in the fields of education, agriculture, energy, health, water, district heating, rehabilitation of roads of different levels, railways and budget support for the realization of public goods and economic development of the country. It can be concluded that if the means of debt are used well, they have positive effects on the economy, welfare growth, public goods, otherwise, if not properly managed, the government and the state in general will feel the consequences.