Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/227913
Authors: 
Kose, M. Ayhan
Ohnsorge, Franziska
Sugawara, Naotaka
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 2006
Abstract: 
Government debt has risen substantially in emerging market and developing economies (EMDEs) since the global financial crisis. The current environment of low global interest rates and weak growth may appear to mitigate concerns about elevated debt levels. Considering currently subdued investment, additional government borrowing might also appear to be an attractive option for financing growth-enhancing initiatives such as investment in human and physical capital. However, history suggests caution. Despite low interest rates, debt was on a rising trajectory in half of EMDEs in 2018. In addition, the cost of rolling over debt can increase sharply during periods of financial stress and result in financial crises; elevated debt levels can limit the ability of governments to provide fiscal stimulus during downturns; and high debt can weigh on investment and long-term growth. Hence, EMDEs need to strike a careful balance between taking advantage of low interest rates and avoiding the potentially adverse consequences of excessive debt accumulation.
Subjects: 
Debt sustainability
fiscal balance
government debt
optimal debt level
private debt
JEL: 
E62
H62
H63
Document Type: 
Working Paper

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