Publication: The Aftermath of Debt Surges
Date
2021-09
ISSN
Published
2021-09
Author(s)
Abstract
Debt in emerging market and developing
economies (EMDEs) is at its highest level in half a century.
In about nine out of 10 EMDEs, debt is higher now than it
was in 2010 and, in half of the EMDEs, debt is more than 30
percentage points of gross domestic product higher.
Historically, elevated debt levels increased the incidence
of debt distress, particularly in EMDEs and particularly
when financial market conditions turned less benign. This
paper reviews an encompassing menu of options that have, in
the past, helped lower debt burdens. Specifically, it
examines orthodox options (enhancing growth, fiscal
consolidation, privatization, and wealth taxation) and
heterodox options (inflation, financial repression, debt
default and restructuring). The mix of feasible options
depends on country characteristics and the type of debt.
However, none of these options comes without political,
economic, and social costs. Some options may ultimately be
ineffective unless vigorously implemented. Policy reversals
in difficult times have been common. The challenges
associated with debt reduction raise questions of global
governance, including to what extent advanced economies can
cast their net wider to cushion prospective shocks to EMDEs.
Link to Data Set
Citation
“Kose, M. Ayhan; Ohnsorge, Franziska; Reinhart, Carmen; Rogoff, Kenneth. 2021. The Aftermath of Debt Surges. Policy Research Working Paper;No. 9771. © World Bank, Washington, DC. http://hdl.handle.net/10986/36279 License: CC BY 3.0 IGO.”
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