The digital edge and institutional quality: A pathway to effective public debt management in developing MENA economies

Abstract

This research examines the role of digitization in improving the impact of the quality of institutions on public debt. It studies a panel dataset for 12 Middle East and North Africa countries over 20 years. It aims to assess the function of digital governance in enhancing the ability of institutional frameworks to efficiently manage public debt. Specifically, it tests the effect of digitized quality of institutions on public debt by introducing government digitization into a consolidated quality of institutions metric, which is based on the worldwide governance indicators. We construct this metric using Principal Component Analysis, which sharply highlights the critical role of a holistic quality of institutions approach in public debt management. The research suggests utilizing a single-step Generalized Method of Moments estimation model, which is known for its robustness in studying dynamic panel datasets and includes associated diagnostic tests to properly validate estimation results. The findings demonstrate a positive and significant correlation between the digitized quality of institutions and public debt. The research provides a distinct understanding of institutional capacity enhancement for effective public debt management by integrating government digitization into the framework of governance itself. It provides invaluable insights for decision-makers, particularly in developing countries suffering from weak governance structures. By integrating digitization into the governance structures, countries enhance the quality and capacity of their institutions, which proves to be a critical factor in effective public debt management.