Wednesday, February 8, 2023
  • About Us
  • Contact Us
Parliamentobserver
  • Ecology
  • Economy
  • Healthcare
  • Politics
  • Education
  • Business
  • Login
No Result
View All Result
Parliamentobserver
Home Business

Does government debt increase after global recessions?

Dennis Rogers by Dennis Rogers
September 29, 2022
in Business
0
Does government debt increase after global recessions?
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

By M. Ayhan Kose, Peter Nagle, Franziska Ohnsorge, Naotaka Sugawara

Related posts

The SaaS market will grow by 30% by 2029

The SaaS market will grow by 30% by 2029

December 26, 2022
More than 100 people arrested in the U.K. after analyzing bitcoin transactions

More than 100 people arrested in the U.K. after analyzing bitcoin transactions

December 26, 2022

Global government debt surged to nearly 100 percent of GDP during the global recession of 2020, as the COVID-19 pandemic triggered a collapse in output and governments provided unprecedented fiscal support. As the global economy recovers and fiscal support is withdrawn, a key question is whether government debt (relative to GDP) will stabilize and start to decrease. In a new study, we answer this question by analyzing the evolution of government debt after previous recessions.

Government debt: often increases after global recessions

Historically, global government debt has increased after every global recession over the past six decades. Between 1960 and 2019, there were four global recessions: 1975, 1982, 1991, and 2009. Global government debt rose by a cumulative 4-15 percentage points of GDP over the five years following these global recessions—by 4 percentage points of GDP over 1975-80, 15 percentage points over 1982-87, 9 percentage points over 1991-96, and 4 percentage points over 2009-14 (Figure 1).

Global government debt

Government debt also tended to be higher after recessions in a majority of countries. On average, in the five years after a global recession, two-thirds of countries had the same or higher debt levels. A slightly larger share of advanced economies saw higher levels of debt after recessions than emerging market and developing economies (EMDEs), while around three-quarters of low-income countries (LICs) had higher debt after recessions.

Advanced economy debt has seen a consistent jump in the five years after every global recession, with an increase of 3-14 percentage points after the global recessions prior to 2020 (Figure 2). The last three recessions all saw an increase in advanced economy debt of more than 10 percent of GDP.

Advanced economy government debt

In contrast, the evolution of government debt in EMDEs has been more erratic (Figure 3). Government debt in EMDEs excluding China saw small declines in the five years after the 1991 and 2009 recessions. For the 1991 recession, debt rose in the immediate aftermath of the recession but then decreased rapidly as growth recovered. While in the 2009 recession government debt saw a modest increase during the recession but stabilized thereafter, as EMDEs were less affected and recovered more rapidly from the global financial crisis than advanced economies.

EMDE government debt

Regional dimensions: a mixed picture but not for everyone

Regionally, the evolution of government debt after global recessions was more varied. Almost all regions saw an increase in debt following the first two recessions, with particularly large increases in East Asia and the Pacific (EAP), Latin America and the Caribbean (LAC), and sub-Saharan Africa (SSA). EAP and LAC saw an unwinding of this debt in the period after the 1991 recession as debt was reduced, including due to the provision of debt relief (via the issuance of Brady bonds), while debt in SSA rose further as many countries did not receive debt relief until the late 1990s.

Debt was broadly stable in most regions following the 2009 recession, which mainly affected advanced economies. Overall, all regions other than SSA saw at least one global recession episode in which government debt declined. In SSA, however, government debt has increased following each previous recession, and debt only declined during the late 1990s and 2000s as a result of the Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative. SSA has the largest number of LICs, and more than half of LICs are in debt distress or at high risk of debt distress.

Hopes and realities: no time for complacency

In the medium term, some expect that global government debt stocks will stabilize at current levels as a result of the post-pandemic rebound in growth and withdrawal of fiscal support measures. The expected stabilization in debt-to-GDP ratios may alleviate some concerns about elevated debt levels at present.

If such a stabilization materialized, however, it would be a significant departure from debt developments in the aftermath of previous recessions, particularly in the case of advanced economies and countries in SSA. Furthermore, forecasts of government debt tend to suffer from optimism bias: actual government debt to GDP ratios have been shown to be about 10 percentage points of GDP higher after five years than initially forecast, on average.

In light of this historical record, and given large financing gaps and significant investment needs, including facilitating the energy transition, a stabilization in debt levels looks optimistic. Even if debt does stabilize, it remains at exceptionally elevated levels by historical standards and may rise if current low interest rates do not persist.

What are the implications of these observations for policymakers? It is critical to avoid complacency among policymakers who may have optimistic views about debt prospects in the near term. Some policymakers in EMDEs may be tempted to rely on growth alone to lower debt while some others hope that low interest rates would help keep debt service manageable. Policymakers should hope for the best but prepare for the worst as a new monetary policy tightening cycle gets underway in advanced economies.

Previous Post

Debt tsunami of the pandemic

Next Post

Who should regulate: Chairs or majorities of the board

Next Post
Who should regulate: Chairs or majorities of the board

Who should regulate: Chairs or majorities of the board

RECOMMENDED NEWS

Geoff Boeing

Geoff Boeing

1 year ago
One-Third of High-Income Earners Live Paycheck to Paycheck

One-Third of High-Income Earners Live Paycheck to Paycheck

8 months ago
Curtis Lubbe: How much do plants store and why?

Curtis Lubbe: How much do plants store and why?

12 months ago
US National Debt to Surpass 185% of GDP

US National Debt to Surpass 185% of GDP

6 months ago

BROWSE BY CATEGORIES

  • Business
  • Ecology
  • Economy
  • Education
  • Healthcare
  • Politics

POPULAR NEWS

  • Klaus Schwab – The Most Dangerous Man in the World

    0 shares
    Share 0 Tweet 0
  • Ukraine Adopts WEF Proposals

    0 shares
    Share 0 Tweet 0
  • Dr. Robert Malone v WEF

    0 shares
    Share 0 Tweet 0
  • Trudeau’s Approval Rating Hits 12-Month Low

    0 shares
    Share 0 Tweet 0
  • Trudeau Backs Down After Banks Scream about Massive Withdrawals

    0 shares
    Share 0 Tweet 0
Parliamentobserver

We bring you latest news about ecology, economy, healthcare, politics, education, business.

Recent News

  • Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands
  • Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups
  • The Role of Healthcare Advertising in Shaping Economic and Political Decisions

Category

  • Business
  • Ecology
  • Economy
  • Education
  • Healthcare
  • Politics

Recent News

Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands

Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands

February 6, 2023
Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups

Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups

January 18, 2023
  • About Us
  • Contact Us

© 2022 parliamentobserver.com Submit news release

No Result
View All Result
  • Ecology
  • Economy
  • Healthcare
  • Politics
  • Education
  • Business

© 2022 parliamentobserver.com Submit news release

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In