What the pandemic means for government debt, in five charts

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The COVID-19-related global recession and economic policy response have triggered a surge in debt levels in emerging market and developing economies (EMDEs). Coming on top of a surge in global debt since 2010, this creates new risks.  

  1. Debt levels have surged in EMDEs

The COVID-19 pandemic has triggered a steep increase in debt, particularly in EMDEs. This comes on top of a rapid debt increase since 2010.

  1. Unprecedented fiscal stimulus means debt risks have risen.

Unprecedented fiscal stimulus, needed to avoid worse growth outcomes, may have encouraged a private debt buildup that may eventually turn into a contingent liability for governments. 

  1. What goes down will eventually come up

Record low interest rates may mitigate some of the potential risks posed by elevated debt levels until they start rising again or investor sentiment turns .

  1. More debt defaults and debt distress are possible

Several countries have already defaulted on their debt, and a number of other countries, particularly low-income countries, are at high risk of debt distress. 

  1. As debt becomes more complex and less transparent, resolution will become trickier

The share of non-concessional debt in EMDEs has risen as the importance of non-Paris Club lenders has increased, potentially complicating debt resolution if needed.

Sarfraz Hussain
January 14, 2021

Need data for further research and analysis

Nartey Abraham Tetteh
March 01, 2021

Certainly this pandemic will have grave impact on short term financial and economic growth, especially on developing economies. Governments should take advantage and redefine their priorities in the areas of allocation of limited resources and dwell more on digitization, improved health care and good governance.