Debt Sustainability: A Global Perspective

Ludger Schuknecht

doi:10.1017/9781009218528

Series: Cambridge Elements in International Economics

Debt Sustainability

A Global Perspective

Published online by Cambridge University Press: 31 August 2022

Ludger Schuknecht

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Ludger Schuknecht: Affiliation:
Asian Infrastructure Investment Bank

Summary

This study presents the facts, arguments and scenarios around public debt from a global perspective. Especially the largest economies feature record debt and fiscal risks, including from population ageing and financial imbalances. Given low interest rates, there is no imminent problem. But at some point, debt will have to come down. There are four possible scenarios how debt could come down. First, governments could economise and reform. Second, governments could default. Third, governments could erode the real value of debt via inflation and negative real interest rates. However, this scenario cannot continue forever. Policy errors can prompt a loss of confidence, destabilisation and crisis. This fourth scenario last included the largest economies in the 1970s. It would become a major global challenge if it were to happen again in today's interconnected world.

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private and public debt debt sustainability public expenditure financial stability debt scenarios

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Type: Element
Information: Series: Cambridge Elements in International Economics

DOI: https://doi.org/10.1017/9781009218528 [Opens in a new window]

Online ISBN: 9781009218528

Publisher: Cambridge University Press

Print publication: 15 September 2022

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