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What Has Been the Impact of COVID-19 on Debt ? Turning a Wave into a Tsunami

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  • Kose,Ayhan
  • Nagle,Peter Stephen Oliver
  • Ohnsorge,Franziska Lieselotte
  • Sugawara,Naotaka

Abstract

This paper presents a comprehensive analysis of the impact of COVID-19 on debt, puts recent debtdevelopments and prospects in historical context, and analyzes new policy challenges associated with debtresolution. The paper reports three main results. First, even before the pandemic, a rapid buildup of debt inemerging market and developing economies—dubbed the “fourth wave” of debt—had been underway. Because of the sharpincrease in debt during the pandemic-induced global recession of 2020, the fourth wave of debt has turned into atsunami and become even more dangerous. Second, five years after past global recessions, global government debtcontinued to increase. In light of this historical record, and given large financing gaps and significant investmentneeds in many countries, debt levels will likely continue to rise in the near future. Third, debt resolution has becomemore complicated because of a highly fragmented creditor base, a lack of transparency in debt reporting, and a legacystock of government debt without collective action clauses. National policy makers and the global community need to actrapidly and forcefully ensure that the fourth wave does not end with a string of debt crises in emerging market anddeveloping economies as earlier debt waves did.

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  • Kose,Ayhan & Nagle,Peter Stephen Oliver & Ohnsorge,Franziska Lieselotte & Sugawara,Naotaka, 2021. "What Has Been the Impact of COVID-19 on Debt ? Turning a Wave into a Tsunami," Policy Research Working Paper Series 9871, The World Bank.
  • Handle: RePEc:wbk:wbrwps:9871
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    Cited by:

    1. Adarov, Amat & Guénette, Justin Damien & Ohnsorge, Franziska, 2022. "Another legacy of the COVID-19 pandemic: Income divergence," Journal of Policy Modeling, Elsevier, vol. 44(4), pages 842-854.
    2. Jongrim Ha & M. Ayhan Kose & Franziska Ohnsorge, 2022. "Global Stagflation," Koç University-TUSIAD Economic Research Forum Working Papers 2204, Koc University-TUSIAD Economic Research Forum.
    3. Kose, M. Ayhan & Kurlat, Sergio & Ohnsorge, Franziska & Sugawara, Naotaka, 2022. "A cross-country database of fiscal space," Journal of International Money and Finance, Elsevier, vol. 128(C).
    4. Cronin, David & McQuinn, Kieran, 2023. "Government debt forecast errors and the net expenditure rule in EU countries: Undue optimism at a cost," Journal of Policy Modeling, Elsevier, vol. 45(6), pages 1113-1131.
    5. Cronin, David & McGowan, Kieran, 2023. "Government debt forecast errors and the net expenditure rule in EU countries," Papers WP756, Economic and Social Research Institute (ESRI).
    6. 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.

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    More about this item

    Keywords

    Financial Sector Policy; External Debt; Debt Markets; Debt Relief and HIPC; Public Sector Administrative & Civil Service Reform; Economics and Finance of Public Institution Development; De Facto Governments; State Owned Enterprise Reform; Public Sector Administrative and Civil Service Reform; Democratic Government; Private Sector Economics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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