Can This Time Be Different? Policy Options in Times of Rising Debt
Episodes of debt accumulation have been a recurrent feature of the global economy over the past fifty years. Since 2010, emerging and developing economies have experienced another wave of historically large and rapid debt accumulation. Similar past debt buildups have often ended in widespread financial crises in these economies. This paper examines the factors that are likely to determine the outcome of the most recent debt wave, and considers policy options to help reduce the likelihood that it ends again in widespread crises. It reports two main results. First, the rapid increase in debt has made emerging and developing economies more vulnerable to shifts in market sentiment, notwithstanding historically low global interest rates. Second, policy options are available to lower the likelihood of financial crises, and to help manage the adverse impacts of crises when they do occur. These include sound debt management, strong monetary and fiscal frameworks, and robust bank supervision and regulation. The post-crisis debt buildup has coincided with a period of subdued growth as well as the emergence of non-traditional creditors. As a result, policy priorities also need to ensure that debt is spent on productive purposes to improve growth prospects and that all debt-related transactions are transparently reported.
| Main Authors: | , , , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020-03
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| Subjects: | FINANCIAL CRISIS, CURRENCY CRISIS, DEBT CRISIS, DEBT SUSTAINABILITY, PUBLIC DEBT, PRIVATE DEBT, EXTERNAL DEBT, DEBT WAVE, EMERGING MARKET ECONOMIES, PUBLIC FINANCIAL MANAGEMENT, FISCAL POLICY, MONETARY POLICY, |
| Online Access: | http://documents.worldbank.org/curated/en/916221583844322496/Can-This-Time-Be-Different-Policy-Options-in-Times-of-Rising-Debt https://hdl.handle.net/10986/33427 |
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| Summary: | Episodes of debt accumulation have been
a recurrent feature of the global economy over the past
fifty years. Since 2010, emerging and developing economies
have experienced another wave of historically large and
rapid debt accumulation. Similar past debt buildups have
often ended in widespread financial crises in these
economies. This paper examines the factors that are likely
to determine the outcome of the most recent debt wave, and
considers policy options to help reduce the likelihood that
it ends again in widespread crises. It reports two main
results. First, the rapid increase in debt has made emerging
and developing economies more vulnerable to shifts in market
sentiment, notwithstanding historically low global interest
rates. Second, policy options are available to lower the
likelihood of financial crises, and to help manage the
adverse impacts of crises when they do occur. These include
sound debt management, strong monetary and fiscal
frameworks, and robust bank supervision and regulation. The
post-crisis debt buildup has coincided with a period of
subdued growth as well as the emergence of non-traditional
creditors. As a result, policy priorities also need to
ensure that debt is spent on productive purposes to improve
growth prospects and that all debt-related transactions are
transparently reported. |
|---|