A mountain of debt: Navigating the legacy of the pandemic

40 Pages Posted: 18 Oct 2021

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Franziska Ohnsorge

World Bank

Naotaka Sugawara

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 2021

Abstract

The COVID-19 pandemic has triggered a massive increase in global debt levels and exacerbated the trade-offs between the benefits and costs of accumulating government debt. This paper examines these trade-offs by putting the recent debt boom into a historical context. It reports three major findings. First, during the 2020 global recession, both global government and private debt levels rose to record highs, and at their fastest single-year pace, in five decades. Second, the debt-financed, massive fiscal support programs implemented during the pandemic supported activity and illustrated the benefits of accumulating debt. However, as the recovery gains traction, the balance of benefits and costs of debt accumulation could increasingly tilt toward costs. Third, more than two-thirds of emerging market and developing economies are currently in government debt booms. On average, the current booms have already lasted three years longer, and are accompanied by a considerably larger fiscal deterioration, than earlier booms. About half of the earlier debt booms were associated with financial crises in emerging market and developing economies.

Keywords: COVID-19, fiscal policy, sovereign debt, private debt, deficits

JEL Classification: E32, E62, G01, H63

Suggested Citation

Kose, M. Ayhan and Ohnsorge, Franziska and Sugawara, Naotaka, A mountain of debt: Navigating the legacy of the pandemic (October 15, 2021). CAMA Working Paper No. 90/2021, Available at SSRN: https://ssrn.com/abstract=3943012 or http://dx.doi.org/10.2139/ssrn.3943012

M. Ayhan Kose

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

Franziska Ohnsorge (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Naotaka Sugawara

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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