The impacts of economic growth, investment and environmental degradation on public debt in ASEAN-5 countries

The steady growth of public debt in ASEAN-5 for more than two decades creates a risk for these countries, as some have experienced downgrades from rating agencies. This study investigates the factors influencing public debt in the ASEAN-5 countries (Malaysia, Indonesia, the Philippines, Singapore, and Thailand), focusing on key independent variables: economic growth, investment, and the novel inclusion of environmental degradation. The research uncovers significant findings using the Fully Modified Ordinary Least Squares (FMOLS) method on 26 years of data from 1996 to 2021, guided by the Two-Gap Model framework. Both economic growth and environmental degradation are positively associated with public debt levels, indicating that public debt tends to increase with economic expansion and worsening environmental conditions. Conversely, investment negatively impacts public debt levels, suggesting that higher investment may help reduce public debt. This study provides new insights specific to the ASEAN-5 group, which has not been extensively explored. This result offers valuable considerations for policymakers aiming for sustainable and fiscally responsible regional development.