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The Widening of the North–South Divide: Debt Sustainability in a World Weakened by COVID-19

Author

Listed:
  • Sandra Bernardo

    (Faculty of Human and Social Sciences, Fernando Pessoa University (FCHS-UFP), 4294-004 Porto, Portugal
    Centro de Estudos Políticos, Económicos e Sociais (CEPESE—Centre for the Study of Politics, Economy and Society), 4200-365 Porto, Portugal)

  • Maria Luísa Vasconcelos

    (Faculty of Human and Social Sciences, Fernando Pessoa University (FCHS-UFP), 4294-004 Porto, Portugal
    Centro de Estudos Políticos, Económicos e Sociais (CEPESE—Centre for the Study of Politics, Economy and Society), 4200-365 Porto, Portugal)

  • Fátima Rocha

    (Faculty of Human and Social Sciences, Fernando Pessoa University (FCHS-UFP), 4294-004 Porto, Portugal
    Centro de Estudos Políticos, Económicos e Sociais (CEPESE—Centre for the Study of Politics, Economy and Society), 4200-365 Porto, Portugal)

Abstract

This research compares the global debt trends in the aftermath of the COVID-19 pandemic, focusing on economies that frame the North and South divide. The research centers on debt ratios, which serve as indicators of countries’ ability to finance recovery and development projects. The study period runs from 2015 to 2022 and follows the IMF’s country classification, which divides the world into advanced economies (AE) and emerging market and developing economies (EMDE). The research employs panel data regressions to assess three key debt ratios—external debt to Gross Domestic Product (GDP), external debt to exports, and public debt to GDP—against various pandemic-related indicators and control variables. The analysis provides three major contributions. Firstly, an examination of external and public debt burdens is conducted, showing that escalated external and public debt burdens in EMDE contrast with increasing public debt in AE, primarily due to fiscal stimulus. Secondly, it is argued that the ongoing pandemic has intensified the widening economic gap between the North (AE) and the south (EMDE). Thirdly, a review is presented of both orthodox and heterodox policies identified in existing literature that are considered capable of mitigating external vulnerabilities in EMDE. Findings highlight the critical need for multifaceted measures to address debt vulnerability and promote sustainable economic recovery in a post-pandemic world.

Suggested Citation

  • Sandra Bernardo & Maria Luísa Vasconcelos & Fátima Rocha, 2024. "The Widening of the North–South Divide: Debt Sustainability in a World Weakened by COVID-19," Economies, MDPI, vol. 12(2), pages 1-27, February.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:2:p:42-:d:1334635
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    References listed on IDEAS

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    1. M. Ayhan Kose & Peter Nagle & Franziska Ohnsorge & Naotaka Sugawara, 2021. "What has been the impact of COVID-19 on debt? Turning a wave into a tsunami," CAMA Working Papers 2021-99, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Topcu, Mert & Gulal, Omer Serkan, 2020. "The impact of COVID-19 on emerging stock markets," Finance Research Letters, Elsevier, vol. 36(C).
    3. Abdul Waheed, 2017. "Determinants of External Debt: A Panel Data Analysis for Oil and Gas Exporting and Importing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 234-240.
    4. Badi H. Baltagi, 2021. "Econometric Analysis of Panel Data," Springer Texts in Business and Economics, Springer, edition 6, number 978-3-030-53953-5, January.
    5. Arjuna Dibley & Thom Wetzer & Cameron Hepburn, 2021. "National COVID debts: climate change imperils countries’ ability to repay," Nature, Nature, vol. 592(7853), pages 184-187, April.
    6. Johnson Worlanyo Ahiadorme, 2023. "Unpleasant surprises? Debt relief and risk of sovereign default," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 15(1), pages 47-74, January.
    7. Johnson Worlanyo Ahiadorme, 2023. "Unpleasant surprises? Debt relief and risk of sovereign default," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 15(1), pages 47-74, January.
    8. Carmen M. Reinhart & Franziska L. Ohnsorge & Kenneth S. Rogoff & M. Ayhan Kose, 2022. "The Aftermath of Debt Surges," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 637-663, August.
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