Debt and COVID-19

Vulnerability to debt problems had been building in many emerging and developing countries prior to the emergence of the COVID-19 (coronavirus) pandemic. The issues with debt varied significantly across countries but spanned the “classic” cases of deteriorating fiscal finances (especially pronounced as international commodity prices declined and growth slowed since 2013), growth in private debt (potentially contingent liabilities for the government), and “hidden debts” to China (most prevalent among the lower income countries).

The emergence of COVID-19 and the near-global lockdowns that came with it has created the most precarious environment for emerging economies since the 1980s and, more likely, the depression of the 1930s—notwithstanding the unprecedented (in peacetime) fiscal and monetary stimulus put in place in the advanced economies. Since the beginning of a comprehensive monthly time series in 1980, sovereign downgrades by the major rating agencies peaked in April 2020. In this setting, general debt management, sovereign defaults, debt restructuring, and debt relief have, once again, resurfaced as a major policy focus. This seminar will offer an assessment of some of the current and future risks, and discuss some policies that could tackle pre-existing or new debt problems.