This paper presents a comprehensive analysis of the impact of COVID-19 on debt, puts recent debt developments and prospects in historical context, and analyzes new policy challenges associated with debt resolution. The paper reports three main results. First, even before the pandemic, a rapid buildup of debt in emerging market and developing economies—dubbed the “fourth wave” of debt—had been underway. Because of the sharp increase in debt during the pandemic-induced global recession of 2020, the fourth wave of debt has turned into a tsunami and become even more dangerous. Second, five years after past global recessions, global government debt continued to increase. In light of this historical record, and given large financing gaps and significant investment needs in many countries, debt levels will likely continue to rise in the near future. Third, debt resolution has become more complicated because of a highly fragmented creditor base, a lack of transparency in debt reporting, and a legacy stock of government debt without collective action clauses. National policy makers and the global community need to act rapidly and forcefully ensure that the fourth wave does not end with a string of debt crises in emerging market and developing economies as earlier debt waves did.
Details
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Author
Kose,Ayhan, Nagle,Peter Stephen Oliver, Ohnsorge,Franziska Lieselotte, Sugawara,Naotaka
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Document Date
2021/11/30
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Document Type
Policy Research Working Paper
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Report Number
WPS9871
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2021/11/30
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Disclosure Status
Disclosed
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Doc Name
What Has Been the Impact of COVID-19 on Debt ? Turning a Wave into a Tsunami
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Keywords
advanced economy; global recession; state-owned enterprise; access to international financial market; increase in debt; total debt; private debt; stock of government debt; increase in interest rate; composition of government debt; community needs; per capita income growth; quality of public service; debt relief; national policy maker; private sector debt; collective action clause; low interest rate; global interest rates; debt buildup; share of debt; global debt; composition of debt; central bank financing; types of debt; lack of transparency; public sector debt; primary fiscal deficit; evolution of debt; global financial crisis; debt level; debt resolution; journal of finance; central bank asset; structure of debt; emerging market economy; total external debt; average interest rate; public external debt; international capital market; fiscal stimulus package; commodity-exporting countries; risk and vulnerability; primary fiscal balances; fight against corruption; countries in arrears; accumulation of arrears; private sector borrowing; world war ii; debt service relief; misuse of fund; opportunities for corruption; management of risk; review of expenditure; Check and Balances; high debt levels; government debt ratio; debt service costs; use of debt; payment of interest; sovereign credit rating; international financial institution; private sector lender; substantial debt relief; interest rate adjustment; outstanding international debt; central bank credibility; exchange rate risk; global capital market; real interest rate; private sector creditor; high public debt; foreign currency debt; overvalued exchange rate; debt management practice; good faith effort; access to finance; private sector investor; global banking industry; availability of credit; availability of finance; debt crisis; debt restructuring; domestic debt; sovereign debt; fiscal support; debt accumulation; fiscal rule; credit extension; private creditor; borrowing cost; debt contract; financial policies; available data; debt rise; consensus building; several countries; debt sustainability; government support; fiscal policy; Fiscal policies; first wave; asset purchase; debt reporting; sovereign bond; productive purposes; minimum requirement; investment need; output collapse
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Citation
Kose,Ayhan Nagle,Peter Stephen Oliver Ohnsorge,Franziska Lieselotte Sugawara,Naotaka
What Has Been the Impact of COVID-19 on Debt Turning a Wave into a Tsunami (English). Policy Research working paper,no. WPS 9871,COVID-19 (Coronavirus) Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/801991638297695658/What-Has-Been-the-Impact-of-COVID-19-on-Debt-Turning-a-Wave-into-a-Tsunami