Global Government Debt

Low-interest rates for over a decade have led to a build-up of global financial risks and historically high levels of government and private debt in most countries. These debt vulnerabilities have significantly increased with the pandemic and the Great Lockdown, which has led to large increases in debt and deficits beyond those recorded during the global financial crisis. As countries fight the pandemic, they have committed to spend whatever it takes to save lives, protect people from losing jobs and incomes, and spare companies from bankruptcies, while supporting recovery. Low-interest rates make borrowers more vulnerable if interest rates rise, and they erode bank profits, which hampers banks’ ability to lend money to businesses so they can grow. The pandemic hit many vulnerable low-income countries hard: 50 per cent of these countries are at high risk of debt distress. Economic shocks like the spread of a global virus can stall their economies and reverse financing flows, which further complicates their ability to manage their debt.