## The Problem with Debt

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**Canonical URL:** [The Problem with Debt](https://www.imf.org/-/media/files/publications/fandd/article/2018/march/letterfr.pdf)

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### Overview
- With the global economy humming along, many countries nevertheless face high public and private debt that risks choking off growth.
- Excessive debt keeps countries from investing in future growth areas such as education and health and from addressing low productivity that holds back wages.
- The global recovery presents a rare opportunity to put fiscal houses in order because rising interest rates will soon make it harder to refinance and service debt.

### Advanced Economies: Fiscal Adjustment
- Two broad options to reduce debt: raise taxes or lower spending.
- Alberto Alesina, Carlo Favero, and Francesco Giavazzi find that countries take a smaller hit to growth if they cut spending—including for entitlement programs—than if they raise taxes.
- The authors argue that raising taxes can be self-defeating, leading to even higher debt and lower growth.
- Political and social constraints: with growing concern over inequality, social spending cuts can be hard to justify; François Bourguignon reviews how best to address rising inequality and assess difficult trade-offs.

### Low-Income and Emerging Market Economies
- Key challenge: expand the tax base and increase the efficiency of public spending.
- Contemporary debt crises are more difficult to resolve than past crises because the debt landscape is more complex, according to Fanwell Bokosi of the African Forum and Network on Debt and Development.

### Policy Implications and Timing
- Governments should use the current upswing in the global economy to strengthen fiscal positions.
- Rising interest rates will soon make refinancing and servicing debt more difficult, increasing urgency for action.

### Contextual and Publication Details
- Finance & Development, MARCH 2018.
- Cover theme: Balancing Act — Managing the Public Purse.
- Cover illustration concept: the stark choice countries face between spending and saving.
- Price listed for a related publication: $25. English. ©2018. ISBN 978-1-48431-032-8. Stock# FBBUCMEA.

*Source: Editor’s letter, FINANCE & DEVELOPMENT, March 2018.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/march/letterfr.pdf_