Public Debt and Fiscal Sustainability: A Theoretical Analysis of Contemporary Fiscal Policy Challenges

This study provides a theoretical analysis of the relationship between public debt and fiscal sustainability in the context of growing government expenditures, recurring budget deficits, and increasing borrowing requirements. Fiscal sustainability refers to the government’s ability to meet its current and future financial obligations without resorting to continuous debt accumulation, excessive taxation, monetary financing, or severe reductions in public services. The study discusses the main determinants of public debt sustainability, including economic growth, interest rates, primary budget balances, revenue-generating capacity, and the structure and maturity of government debt. It also examines the potential economic consequences of excessive public borrowing, such as higher debt-servicing costs, reduced fiscal flexibility, crowding out of private investment, and the transfer of financial burdens to future generations. Nevertheless, public debt may support economic development when it is used to finance productive infrastructure, human capital, and projects that enhance long-term growth. The study argues that the sustainability of public debt depends not only on its size but also on its composition, purpose, financing conditions, and the institutional quality of fiscal management. Effective expenditure control, efficient taxation, transparent budgeting, and credible medium-term fiscal frameworks are therefore essential for maintaining fiscal sustainability.