The growing public debt and the associated risks

The mBank-CASE Seminar Proceedings No. 172 “The growing public debt and the associated risks” consists of two articles: “The increasing risk of sovereign insolvency and a new global financial crisis in the post-COVID-19 era” authored by Marek Dąbrowski, and “Will Poland fall into the debt trap?” authored by Jakub Karnowski and Marek Rzońca. From the “Introduction” to “The increasing risk of sovereign insolvency and a new global financial crisis in the post-COVID-19 era” authored by Marek Dąbrowski: “This paper aims to diagnose the fiscal situation in advanced economies (AEs) and its evolution since 2007. Our analysis covers the periods of the global financial crisis (GFC) (2007–2009), a subsequent recovery, and the COVID-19 pandemic (2020–2021). We start from an overview of the public debt dynamic in AEs since 2007 (Section 1.1.). Then we remind a public debt sustainability equation (Section 1.2.) and discuss whether real interest rates (r) can continue to stay low and lower than the growth rate of real GDP (g) for a more extended period (Section 1.3). Section 1.4. is devoted to fiscal policy risks that may emerge from a short-to-medium time perspective. Section 1.5. discusses the necessity of starting fiscal adjustment as soon as possible and its possible directions. Section 1.6. analyses the risks to global financial stability originating from the unsustainable path of public debt. Section 1.7. focuses on the negative consequences of a large public debt for monetary policy and the central bank’s (CB) independence. Section 1.8. offers short conclusions.” From the “Introduction” to “Will Poland fall into the debt trap?” authored by Jakub Karnowski and Marek Rzońca: “The purpose of this work is to analyze the so-called debt trap, including in particular evaluating the risk that the Polish economy will fall into it.