Debt Surges—Drivers, Consequences, and Policy Implications

By Florian Schuster, Marwa Alnasaa, Lahcen Bounader, Il Jung, Jeta Menkulasi, Joana da Mota

March 8, 2024

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Format: Chicago

Florian Schuster, Marwa Alnasaa, Lahcen Bounader, Il Jung, Jeta Menkulasi, and Joana da Mota. Debt Surges—Drivers, Consequences, and Policy Implications, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Many countries find themselves with elevated debt levels, increased debt vulnerabilities, and tight financing conditions, while also facing increased spending needs for development and transition to a greener economy. This paper aims to place the current debt landscape in a historical context and investigate the drivers of debt surges, to what degree they result in a crisis as well as examine post-surge debt trajectories and under what conditions debt follows a non-declining path. We find that fiscal policy and stock-flow adjustments play important roles in debt dynamics with the valuation effects arising from currency depreciation explaining more than half of stock flow adjustments in LICs. Debt surges are estimated to result in a financial crisis with a probability of 11–20 percent and spending-driven fiscal expansions during debt surges tend to result in a high probability of non-declining debt path.

Subject: Contingent liabilities, Financial crises, Fiscal policy, Foreign exchange, Public debt, Public financial management (PFM)

Keywords: Contingent liabilities, Debt surge, Debt surges, Exchange rate depreciation, Financial crisis, Fiscal expansion, Global, Post debt path, Public debt, Stock-flow adjustment, Surge attribute, Surge debt trajectory, Surge episode

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/050
Stock No:

WPIEA2024050
ISBN:

9798400268779
ISSN:

1018-5941

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