Can this Time Be Different? Policy Options in Times of Rising Debt

42 Pages Posted: 11 Mar 2020

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Peter Stephen Oliver Nagle

World Bank

Franziska Ohnsorge

World Bank; Centre for Economic Policy Research (CEPR); Australian National University (ANU) - Crawford School of Public Policy

Naotaka Sugawara

World Bank

Date Written: March 10, 2020

Abstract

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.

Suggested Citation

Kose, M. Ayhan and Nagle, Peter Stephen Oliver and Ohnsorge, Franziska and Sugawara, Naotaka, Can this Time Be Different? Policy Options in Times of Rising Debt (March 10, 2020). World Bank Policy Research Working Paper No. 9178, Available at SSRN: https://ssrn.com/abstract=3552292

M. Ayhan Kose (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Peter Stephen Oliver Nagle

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Franziska Ohnsorge

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Naotaka Sugawara

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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