UNVEILING THE NEXUS BETWEEN GOVERNMENT GUARANTEES AND THE RIPPLE EFFECT ON ECONOMIC LANDSCAPES

This article delves into a comprehensive examination of the Government Guarantees (GG) in shaping economic stability and promoting growth through sustained private expenditure in various sectors. This study shows the GG's importance in elucidating confidence among consumers and businesses, particularly in providing financial support for social commitments or risky projects. It also serves as a counter-cyclical measure preventing total failure during periods of recession and facilitating recovery efforts. Empirical analysis from the Macro-econometric model (MM) approach shows that the behavioural equations are significant and consistent with anticipated theoretical patterns proving the credibility of the model. Furthermore, diagnostic tests confirm the absence of problems such as heteroscedasticity and serial correlation demonstrating the model's robustness. Sensitivity analysis shows that when GG rises by 1 percentage point (ppt), nominal Gross Domestic Product (GDP) will increase by 0.302 ppt, mainly through the private expenditure channel. Based on the model, nominal growth is estimated at 7.3% for 2024 and projected at 7.4% for 2025, respectively, mainly driven by domestic demand activities as well as GG growth trajectories. Early detection of signs of financial distress is very important to prevent GG default. Equally important is recognising GG's significant contribution to national economies by adopting binding approaches to prudent risk management and reporting, such as the Public Finance and Fiscal Responsibility Act 2023 [Act 850]; and equally essential are robust monitoring mechanisms as well as risk mitigation measures. Compliance with the recommended policies will enhance the effectiveness of GG, facilitate equitable resource distribution as well as promote economic growth and stability.