Publication: A Mountain of Debt: Navigating the Legacy of the Pandemic
Date
2021-10
ISSN
Published
2021-10
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.
Citation
“Kose, M. Ayhan; Ohnsorge, Franziska; Sugawara, Naotaka. 2021. A Mountain of Debt: Navigating the Legacy of the Pandemic. Policy Research Working Paper;No. 9800. © World Bank, Washington, DC. http://hdl.handle.net/10986/36386 License: CC BY 3.0 IGO.”
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