Benefits and Costs of Debt : The Dose Makes the Poison
Government debt has risen substantially in emerging market and developing economies (EMDEs) since the global financial crisis. The current environment of low global interest rates and weak growth may appear to mitigate concerns about elevated debt...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/648141582830563001/Benefits-and-Costs-of-Debt-The-Dose-Makes-the-Poison http://hdl.handle.net/10986/33409 |
| Summary: | Government debt has risen substantially
in emerging market and developing economies (EMDEs) since
the global financial crisis. The current environment of low
global interest rates and weak growth may appear to mitigate
concerns about elevated debt levels. Considering currently
subdued investment, additional government borrowing might
also appear to be an attractive option for financing
growth-enhancing initiatives such as investment in human and
physical capital. However, history suggests caution. Despite
low interest rates, debt was on a rising trajectory in half
of EMDEs in 2018. In addition, the cost of rolling over debt
can increase sharply during periods of financial stress and
result in financial crises; elevated debt levels can limit
the ability of governments to provide fiscal stimulus during
downturns; and high debt can weigh on investment and
long-term growth. Hence, EMDEs need to strike a careful
balance between taking advantage of low interest rates and
avoiding the potentially adverse consequences of excessive
debt accumulation. |
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