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 As the global economy recovers and fiscal support is withdrawn, a key question is whether government debt (relative to GDP) will stabilize and start to decrease.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.
Starting in 2010, a new wave of debt accumulation—the “fourth wave” of debt—had been underway in emerging market and developing economies (EMDEs, Figure 1). With the sharp increase in debt during the COVID-19 pandemic, the fourth wave of debt has turned into a tsunami and become even more dangerous. The tsunami of debt has amplified the difficulty of resolving debt not just because of record debt levels but also because of significant changes in the structure of debt markets.