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Debt Surges—Drivers, Consequences, and Policy Implications
Author:
Florian Schuster
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Marwa Alnasaa
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Lahcen Bounader https://isni.org/isni/0000000404811396 International Monetary Fund

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Il Jung
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Jeta Menkulasi https://isni.org/isni/0000000404811396 International Monetary Fund

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Joana da Mota
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 050
Language:
English
Publication Date:
08 Mar 2024
DOI:
https://doi.org/10.5089/9798400268779.001
ISBN:
9798400268779
ISSN:
1018-5941
Pages:
53
Keywords:
Public debt; debt surges; financial crisis; stock-flow adjustment; exchange rate depreciation; fiscal expansion; debt surge; surge episode; surge attribute; post debt path; surge debt trajectory; Contingent liabilities; Global
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund