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The COVID-19 pandemic has triggered a massive increase in global debt levels. Over the past few months, we have released three new studies analyzing debt challenges confronting emerging market and developing economies and potential policy responses.

·      What Has Been the Impact of COVID-19 on Debt? Turning a Wave into a Tsunami. This study puts recent debt developments and prospects in historical context and analyzes new policy challenges associated with debt resolution. 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. 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. (for non-technical summaries, see here and here)

·      The Aftermath of Debt Surges. In the past, debt burdens have been lowered through orthodox approaches (enhancing growth, fiscal consolidation, privatization, and wealth taxation) or heterodox approaches (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 approaches comes without political, economic, and social costs. (for a non-technical summary, see here)

·      A Mountain of Debt: Navigating the Legacy of the Pandemic. The COVID-19 pandemic has exacerbated the trade-offs between the benefits and costs of accumulating government debt. This study argues that the debt-financed, massive fiscal programs implemented last year illustrated the benefits of debt by supporting activity. However, as the recovery gains traction, the balance of benefits and costs of debt accumulation could increasingly tilt toward costs. (for a non-technical summary, see here) (...)

PS: These recent studies build on our work program on fiscal policy and debt. For an in-depth analysis of debt cycles, see Global Waves of Debt: Causes and Consequences; for our comprehensive database of fiscal space indicators, see A Cross-Country Database of Fiscal Space. You can download our periodical publications here: Global Economic Prospects, Commodity Markets Outlook, and Global Monthly. (...)

M. Ayhan Kose 

Chief Economist and Director of Prospects Group

Equitable Growth, Finance and Institutions

World Bank Group

T +1 (202) 473-8350

E  akose@worldbank.org

W ayhankose