2023-Public-Sector-Perspectives

The total global debt stock is concentrated in the developed markets which collectively have outstanding debt standing at US$194.4 trillion as of Q3 2022, while emerging markets account for US$96.2 trillion. Of this, government debt in the developed markets accounts for US$57.8 trillion (30 percent of the total developed market debt) and in emerging markets, US$24.5 trillion (about 26 percent of the total emerging market debt). 2 Even before the pandemic, governments increasingly resorted to debt financing spurred by years of low interest rates and broadly accommodative monetary policy. The access to debt on relatively easy terms may have dissipated incentives for many governments to make more concerted efforts to expand and diversify their revenue bases in order to cover their growing expenditures. Markedly, as shown in Figure 1, government debt in developed markets almost doubled since the Global Financial Crisis (GFC) while increasing by nearly 4.5 times in the emerging markets over the same period. Figure 1: Total global government debt in US$ trillion 0 10 20 30 40 50 60 70 80 90 Q32022 Q12020 2012 2008 Developed EM 32.3 37.9 5.6 19.7 53.0 72.7 10.0 47.6 57.8 57.8 82.4 24.5 Source: Haver, IIF data as of Q32022 Borrowing by governments in the emerging markets over the last several years has been mostly via external debt denominated in foreign currency, which exacerbates their vulnerability to shocks. This risk is accentuated more so now as the Federal Reserve (alongside other central banks) continues to tighten monetary policy, driving up the value of the USD — in which more than half of all international loans and debt securities are denominated 3 — vis-à-vis most emerging market currencies. Consequently, governments with already elevated debt levels can face additional pressures and refinancing challenges that can worsen with market volatility or currency depreciations, or if they lose market access. The access to debt on relatively easy terms may have dissipated incentives for many governments to make more concerted efforts to expand and diversify their revenue bases in order to cover their growing expenditures. 2 International Finance Institute (IIF) data as of Q32022 3 BIS Data as of Q22022 66 Debt-For-Sustainability: Addressing Debt Pressures and Achieving SDG Goals