Comparative Analysis of Factors Affecting Government Debt Using the Examples of Slovenia and Armenia

This paper examines the macroeconomic determinants of government debt in two small open economies with distinct institutional frameworks—Armenia and Slovenia. The analysis focuses on key fiscal variables (budget balance and GDP growth) and monetary factors (inflation and interest rates). Using quarterly data for the period 2004–2025 and an Autoregressive Distributed Lag (ARDL) approach, the results provide robust evidence of cointegration between government debt and its macroeconomic drivers. The findings reveal distinct debt dynamics across the two countries. In Armenia, debt is predominantly growth-driven: higher GDP growth significantly reduces debt levels, while rising interest rates increase debt burdens, with fiscal balance and inflation showing limited long-run significance. In contrast, Slovenia’s debt dynamics are shaped by Eurozone-constrained monetary and fiscal conditions, inflation persistence, and accession-related structural shifts. While GDP growth, fiscal balance, and inflation have only marginal long-run effects, short-run dynamics are influenced by inflation persistence and the structural impact of Euro adoption. Error-correction mechanisms confirm stable long-run convergence in both models. The results highlight that debt sustainability in small open economies is highly context-dependent, reflecting the interaction between macroeconomic fundamentals and institutional constraints. The study contributes to the literature by offering a comparative ARDL-based analysis and by distinguishing between growth-driven and institution-driven debt regimes, while also providing policy-relevant insights for balancing growth, fiscal discipline, and institutional compliance.