What Has Been the Impact of COVID-19 on Debt? Turning a Wave into a Tsunami

36 Pages Posted: 20 May 2022

See all articles by M. Ayhan Kose

M. Ayhan Kose

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

Peter Stephen Oliver Nagle

World Bank

Franziska Ohnsorge

World Bank; Centre for Economic Policy Research (CEPR); Australian National University (ANU) - Crawford School of Public Policy

Naotaka Sugawara

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2021

Abstract

This paper presents a comprehensive analysis of the impact of COVID-19 on debt, puts recent debt developments and prospects in historical context, and analyzes new policy challenges associated with debt resolution. The paper reports three main results. First, even before the pandemic, a rapid build-up of debt in emerging market and developing economies -dubbed the “fourth wave” of debt - had been underway. Because of the sharp increase in debt during the pandemic-induced global recession of 2020, the fourth wave of debt has turned into a tsunami and become even more dangerous. Second, five years after past global recessions, global government debt continued to increase. In light of this historical record, and given large financing gaps and significant investment needs in many countries, debt levels will likely continue to rise in the near future. Third, debt resolution has become more complicated because of a highly fragmented creditor base, a lack of transparency in debt reporting, and a legacy stock of government debt without collective action clauses. National policy makers and the global community need to act rapidly and forcefully ensure that the fourth wave does not end with a string of debt crises in emerging market and developing economies as earlier debt waves did.

Keywords: Fiscal balance, government debt, private debt, global recessions, resolution

JEL Classification: E62, H62 H63

Suggested Citation

Kose, M. Ayhan and Nagle, Peter Stephen Oliver and Ohnsorge, Franziska and Sugawara, Naotaka, What Has Been the Impact of COVID-19 on Debt? Turning a Wave into a Tsunami (December 8, 2021). CAMA Working Paper No. 99/2021, Available at SSRN: https://ssrn.com/abstract=3980291 or http://dx.doi.org/10.2139/ssrn.3980291

M. Ayhan Kose

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Peter Stephen Oliver Nagle

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Franziska Ohnsorge (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Naotaka Sugawara

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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