## fd-mar26-thedebtreckoning - 4.0 percent to 1.8 percent of GNP.

## Source details

**Canonical URL:** [fd-mar26-thedebtreckoning - 4.0 percent to 1.8 percent of GNP.](https://www.imf.org/-/media/files/publications/fandd/article/2026/03/fd-mar26-thedebtreckoning.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fandd/article/2026/03/fd-mar26-thedebtreckoning.pdf.md)
- [Structured JSON version](/-/media/files/publications/fandd/article/2026/03/fd-mar26-thedebtreckoning.pdf.json)

---

### US fiscal trajectory and historical contrasts
- Presidential decisions and fiscal outcomes:
  - President George H.W. Bush negotiated a deal projected to save nearly $500 billion over five years; political cost contributed to his electoral defeat two years later.
  - In July 2025, with US debt approaching 100 percent of gross domestic product, unemployment just over 4 percent, and deficits projected to rise from 5.5 percent to 5.9 percent of GDP by 2030, President Donald J. Trump and a Republican-controlled Congress enacted the One Big Beautiful Bill Act at a cost of about $2 trillion over the next five years.
- Structural pressures and past dynamics:
  - Debt-GDP ratio poised to breach its historic post–World War II high; demographic pressures and expanding old-age entitlements pushing spending higher.
  - Between 2001 and 2021, as the US debt-GDP ratio more than tripled, debt service fell from 2.0 percent to 1.5 percent of GDP.

### Major economic shocks and structural drivers
- Large shocks that raised national debt:
  - The global financial crisis and the COVID-19 pandemic reduced revenues and increased spending through fiscal stimulus.
- Political economy constraints:
  - Political polarization reduced prospects for bipartisan fiscal consolidation; the Simpson-Bowles Commission (2010) lacked follow-through.
  - Lack of observable damage from debt until recently muted pressure; recent sharp growth in debt service reverses that trend.
- Subtle economic costs already observed:
  - Increased US external imbalance and potential crowding out of productive domestic private investment.

### Scenarios, risks, and projections
- Long-run projections and scenario framing:
  - Some project the US debt-GDP ratio will nearly double over the next three decades.
- Two fiscal-path scenarios:
  - Gradual path: national debt and interest rates continue to rise; debt service consumes an increasing share of government revenues; political opposition may eventually weaken enabling compromise or the government may borrow more to delay cuts.
  - Sudden path: current trajectory continues until borrowing becomes too expensive, producing abrupt fiscal stress; timing uncertain and described as “far away at this point.”
- Impending policy triggers:
  - Exhaustion of Social Security and Medicare trust funds projected to occur within the next decade could force tax increases, benefit cuts, or additional borrowing (reference to the 1983 precedent).

### Policy options and political economy constraints
- Capacity and constraints:
  - The US can enact tax and spending reforms to achieve fiscal sustainability, but progress depends on political realignment and restoration of bipartisan action.
  - Reforms historically require bipartisan agreement to be politically viable.
- Fiscal trade-offs and IMF-framed priorities:
  - High public debt and rising borrowing costs reduce fiscal space and crowd out priorities.
  - Net interest payments in the US climbed from about 2 percent of GDP before the pandemic to 4.2 percent in 2025—surpassing defense spending—and are set to rise further.
  - Global public debt climbed to 93.9 percent of GDP in 2025 and is on track to breach 100 percent by 2028.
  - In low-income countries, interest payments consume 21 percent of tax revenues on average.
- Recommended fiscal frameworks and institutional reforms:
  - Credible medium-term fiscal anchors with escape clauses for rare shocks.
  - Transparent plans prioritizing investment while protecting the vulnerable.
  - Institutional frameworks: independent fiscal councils, spending evaluations, tax expenditure reports.
  - Operational measures: prudent public wage-bill management, efficient procurement, reduction of special tax regimes and pension privileges, strong oversight of state-owned enterprises.

### Trust, public perceptions, and distributional fairness
- Fiscal literacy and perceptions:
  - About 42 percent of respondents understood that raising taxes or cutting spending would reduce a government deficit.
  - More than 60 percent underestimated their country’s debt-to-GDP level, especially in high-debt countries.
- Trust effects on expectations:
  - Respondents who report more trust in their government are 20 percent more likely to believe policies will stabilize or reduce public debt.
  - Those with greater trust are 17 percent more likely to expect a positive impact on their own welfare from debt-reduction policies.
- Political risks from mistrust:
  - Repeated austerity without visible benefits, corruption, or misuse of funds erodes confidence and makes reform politically costly.
  - Perceived unfairness about who bears the burden drives opposition across income and demographic groups.
- Rebuilding trust:
  - Requires competence, transparency, and fairness; institutional measures cited include independent fiscal councils and improved public financial management.

### Intergenerational considerations and priorities
- Demographic and generational pressures:
  - Advanced economies: about three workers per retiree now, down from roughly four in 2000; heading toward two workers by 2050 (OECD 2025).
- Policy dilemma:
  - High and persistent deficits financed by debt transfer burdens to future taxpayers; much recent borrowing financed current consumption rather than growth-enhancing investment.
  - Trade-off: invest now in infrastructure, education, climate resilience versus preserve fiscal firepower for future shocks; exhausting borrowing capacity in good times risks dangerous exposure in the next downturn.

### Treasury market structure, dysfunctions, and intervention lessons
- Market vulnerabilities and mechanics:
  - Publicly held federal debt to GDP is now about 100 percent.
  - Institutional asset managers often obtain duration exposure via derivatives while holding higher-yielding cash assets, increasing reliance on hedge funds and dealers to arbitrage cash and derivative markets.
  - Hedge funds finance long cash-Treasury positions by borrowing as much as 99 percent of the overall position in the repurchase (repo) market.
  - Dealers’ limited balance sheet capacity constrains their ability to absorb large flows during stress.
- March 2020 stress episode:
  - Investors sold Treasuries to raise cash; hedge funds facing margin calls rapidly exited basis trades; dealers’ balance sheets were strained.
  - The Federal Reserve purchased roughly $1.6 trillion in Treasury securities in a few weeks, restoring market functioning but raising concerns about monetary-policy signaling.
- Policy recommendations for market-function interventions:
  - Prefer better-designed, surgical interventions rather than more frequent blunt interventions.
  - Proposed narrower intervention: Fed purchases of cash Treasuries hedged against interest rate risk by simultaneously selling Treasury futures or entering equivalent derivative positions, keeping the operation duration-neutral.
  - Advantages of hedged, duration-neutral interventions: relieve dealer balance-sheet pressure, separate market-function support from monetary policy, and limit Fed interest-rate exposure.
- Moral hazard and mitigation:
  - Hedged interventions are less prone to moral hazard than unhedged purchases.
  - A “penalty-rate” approach: allow basis spreads to widen beyond normal levels, cap only extreme dislocations, intervene at clearly dysfunctional thresholds, and allow some private-sector losses.

### Stabilizing debt in advanced economies (Darvas and Zettelmeyer findings)
- Horizon and approach:
  - 20-year horizon starting in 2024, with a seven-year first period and a 13-year second period; first period raises the primary balance to stabilize debt with a 70 percent probability over the final five years.
- Required long-term primary balances (sample countries):
  - France: 1.3 percent of GDP.
  - United States: 1.3 percent of GDP.
  - Belgium: 1.8 percent of GDP.
  - United Kingdom: 1.8 percent of GDP.
  - Italy: 2.5 percent of GDP.
- Adjustment magnitudes relative to 2024 deficits:
  - About a dozen countries require adjustments of more than 3 percent of GDP.
  - Five countries—France, Poland, Romania, the Slovak Republic, and the US—need adjustments of 5 percent relative to 2024.
- Historical feasibility and examples:
  - France’s needed primary surplus of 1.3 percent of GDP has occurred only six times in five decades.
  - Positive cases: Greece in 2024 posted a primary balance of 4.0 percent (cyclically adjusted); Portugal needs 0.5 percent of GDP; Ireland required 1.9 percent of GDP and has a debt ratio of 39 percent of GDP.
  - United States debt ratio: 122 percent of GDP.
  - United Kingdom debt ratio: 101 percent of GDP.
- Growth after adjustment examples:
  - Greece, Portugal, and Ireland achieved average annual growth between 3.1 percent and 4.2 percent in 2022–25, exceeding the US pace of 2.6 percent.
- Adjustment scenarios:
  - Best: growth-enhancing reform plus deep social-security/pension and tax reforms.
  - More likely: political leadership shift prioritizing fiscal discipline without deep reform.
  - Hard-landing: sudden spike in borrowing costs leading to debt distress, rising interest rates, financial repression, or surprise inflation.

### Fiscal-monetary coordination under geopolitical fragmentation (Corsetti and Melosi)
- Core problem and mechanism:
  - High and rising public debt combined with persistent inflation calls for coordinated monetary tightening and credible fiscal adjustment, but geopolitical fragmentation and supply disturbances weaken that policy mix.
  - When central banks tighten, real interest rates rise and growth slows, widening primary deficits unless government cuts spending or raises taxes.
- Risks and institutional differences:
  - Without credible fiscal backing, aggressive tightening can trigger uncontrolled inflationary spirals as higher debt-service costs intensify inflation pressure.
  - Supply shocks weaken fiscal backing more than demand shocks.
  - The US and the UK have partial stabilizing mechanisms via explicit rules and unwritten guidelines; the euro area lacks a meaningful federal budget and debt.
- Policy trade-offs:
  - Controlled fiscal inflation: pragmatic tolerance for temporary and moderate inflation may aid gradual adjustment but risks loss of inflation-fighting credibility.
  - Central banks can smooth or delay price adjustment when government bonds are not indexed to inflation, buying time for fiscal corrections or productivity gains.
  - Effective communication needed to assure markets of ability to stabilize public debt.
- Global recommendation:
  - Macroeconomic stability and fiscal sustainability are global public goods requiring enhanced international cooperation, adherence to legal norms, and effective international institutions.

### Debt and inequality; regional debt dynamics
- Debt-inequality highlights:
  - Top 1 percent held roughly 42 percent of all wealth during the Great Depression.
  - Top 1 percent’s wealth share rose from about 22 percent in 1980 to roughly 35 percent in 2010.
  - After 2008, public debt increased while private credit remained broadly flat relative to GDP; total credit to GDP rose mainly because public debt increased.
  - US fiscal deficit is projected to be about 6 percent of GDP.
- China’s shift:
  - China’s current account surplus approached 10 percent of GDP on the eve of the 2008 financial crisis; post-2008, as external surplus receded, domestic debt to GDP rose sharply.
  - Rising total debt to GDP has not translated into higher investment to GDP; much debt financed consumption rather than investment (“indebted demand”).
- Sub-Saharan Africa debt dynamics and recommendations:
  - The region pivoted from external to domestic borrowing; most public debt is now domestic.
  - No countries in sub-Saharan Africa issued Eurobonds between spring 2022 and January 2024.
  - The median country in sub-Saharan Africa issued domestic debt at an average of 8.8 percent interest in 2024.
  - Ghana’s 2023 domestic debt restructuring left average outstanding maturity of less than three months as of November 30, 2025.
  - A typical government in the region spends about one-seventh of its revenue on interest payments alone.
  - Policy recommendations: treat domestic debt-market development as part of broader economic strategy, build trust through transparent debt management to extend maturities, maintain strong fiscal policies, strengthen legal/regulatory frameworks, expand the domestic investor base, and consider managed foreign participation.

### Cross-border tax erosion and health taxes
- Scope and scale:
  - Cross-border movement of low-taxed tobacco products contributed to smuggling or displacement totaling 1.4 billion liters, resulting in excise duty losses of some €4 billion annually.
  - Paraguay’s low tobacco taxes: cheap products make up roughly 20 percent of Brazil’s cigarette market.
  - Displacement of Paraguay-origin cigarettes costs Brazil about $400 million in lost revenue each year.
- Policy principles:
  - Excise taxation should be linked to relative health risks to reduce preventable diseases while supporting sustainable revenues.
  - Comprehensive harm-based tax regimes and international coordination are needed to avoid erosion from new product offerings.

### Digital public infrastructure (DPI) findings and finance-ministry stewardship
- Key facts and constraints:
  - Over 64 national digital identity programs, 97 digital payment systems, and 103 data exchange platforms identified.
  - Only about half of national ID systems are used by more than two public services.
  - South Africa has eight national data exchange platforms operating in isolation.
  - Budgeting and appraisal issues: traditional cost-benefit analysis undersells DPI by overlooking cross-sector spillovers and long-term returns; dispersion of DPI spending across budget lines complicates planning.
  - Crisis example: the US allocated $800 billion to its Paycheck Protection Program; at best, only between a quarter and a third of those resources reached the workers most in need.
- Policy recommendations for finance ministries:
  - Treat core digital systems as long-term shared infrastructure.
  - Embed DPI in public investment management and multiyear budgets.
  - Use finance ministry authority to align ministries, set standards, mandate repurposing of resources, and enforce shared use via budget and procurement.
  - Adopt stewardship roles: evaluator, coordinator/enforcer, or implementer (rare).
  - Prioritize governance, financial sustainability, long-term stewardship, and public trust.

### Gold, trade, and shipping research highlights
- Gold market facts and dynamics:
  - Bretton Woods tied the US dollar to gold at $35 per ounce; Nixon suspended official gold convertibility in 1971.
  - Gold price movements cited:
    - Gold soared above $4,000 an ounce in late 2025.
    - Prices rose about 40 percent, the biggest yearly increase since 1979.
    - Gold holdings in US exchange-traded funds increased more than 40 percent, approaching $200 billion.
    - Prices rose above $5,000 an ounce in early 2026 before dropping back below $4,700.
  - Structural supply/demand facts:
    - Global mining adds barely 1.5 percent to the total above-ground stock each year.
    - Every ounce ever mined: about 210,000 metric tons.
    - Households in India estimated to hold more than 25,000 metric tons.
    - People’s Bank of China holdings: surpassing 2,300 metric tons.
    - Reserve Bank of India holdings: about 880 metric tons.
    - Bitcoin’s fixed supply referenced as 21 million coins.
- Shipping research and macro implications (Kalouptsidi and colleagues):
  - Shipping is “the spine of the economy”; shocks to maritime trade can impair trade flows and affect inflation.
  - China’s industrial policy in shipbuilding: set a goal in 2002 to become top shipbuilder by 2015 and achieved it through state-subsidized shipyards, generous loans, and other support; domestic producers’ long-term returns amounted to only 18 percent of the total of subsidies.
  - Port network effects: investment in one port can reduce congestion elsewhere; capital investment should be coordinated across ports.
  - Containerization research benefited from new automatic identification system tracking and samples of container rates/routes.

### Key statistics and numeric highlights (preserved exactly)
- nearly $500 billion — projected savings from the Bush-era agreement over five years.
- about $2 trillion — One Big Beautiful Bill Act cost over the next five years (enacted July 2025 context).
- just over 4 percent — US unemployment (July 2025 context).
- deficits projected to rise from 5.5 percent to 5.9 percent of GDP by 2030.
- debt service in the US: fell from 2.0 percent to 1.5 percent of GDP between 2001 and 2021.
- net interest payments climbed to 4.2 percent of GDP in 2025.
- Global public debt: 93.9 percent of GDP in 2025; on track to breach 100 percent by 2028.
- Estimated capital expenditure for global data centers by 2030: $6.7 trillion.
- In low-income countries, interest payments consume 21 percent of tax revenues on average.
- Survey fiscal literacy: about 42 percent understood tax/spending reduce deficits; more than 60 percent underestimated debt-to-GDP.
- "about 100 percent" — ratio of publicly held federal debt to GDP is now about 100 percent.
- "99 percent" — hedge funds borrow as much as 99 percent of the overall position in the repo market.
- "roughly $1.6 trillion" — Fed purchased roughly $1.6 trillion in Treasury securities in a few weeks.
- "170 percent of GDP" and "mid-2050s" — Federal government debt could exceed 170 percent of GDP by the mid-2050s (CBO citation in source).
- 1.4 billion liters — volume associated with cross-border movement of low-taxed tobacco products.
- €4 billion — estimated annual excise duty losses from that movement.
- 20 percent — share of Brazil’s cigarette market accounted for by cheap products originating from Paraguay.
- $400 million — estimated annual revenue loss to Brazil from Paraguay-origin cigarettes.
- 8.8 percent — median interest on domestic debt issuance in sub-Saharan Africa in 2024.
- less than three months — average outstanding maturity for Ghana’s domestic debt as of November 30, 2025.
- 64 national digital identity programs; 97 digital payment systems; 103 data exchange platforms.
- only about half — national ID systems used by more than two public services.
- $800 billion — US Paycheck Protection Program allocation; between a quarter and a third of those resources reached the workers most in need (range preserved in source).
- Gold facts: global mining adds barely 1.5 percent to the total above-ground stock each year; every ounce ever mined: about 210,000 metric tons; households in India estimated to hold more than 25,000 metric tons; People’s Bank of China holdings: surpassing 2,300 metric tons; Reserve Bank of India holdings: about 880 metric tons; Bitcoin supply: 21 million coins.
- Gold price moves cited: above $4,000 an ounce in late 2025; prices rose about 40 percent (biggest yearly increase since 1979); approached $200 billion in US ETF holdings; rose above $5,000 an ounce in early 2026 before dropping back below $4,700.

*Source: fd-mar26-thedebtreckoning - 4.0 percent to 1.8 percent of GNP.*

### 4.0 percent to 1.8 percent of GNP.

### fd-mar26-thedebtreckoning - 4.0 percent to 1.8 percent of GNP.

### US fiscal trajectory and historical contrasts
- Presidential decisions highlighted:
  - President George H.W. Bush negotiated a deal projected to save nearly $500 billion over five years; political cost contributed to his electoral defeat two years later.
  - In July 2025, with US debt approaching 100 percent of gross domestic product, unemployment just over 4 percent, and deficits projected to rise from 5.5 percent to 5.9 percent of GDP by 2030, President Donald J. Trump and a Republican-controlled Congress enacted the One Big Beautiful Bill Act at a cost of about $2 trillion over the next five years.
- Debt-GDP ratio is poised to breach its historic post–World War II high; demographic pressures and expanding old-age entitlements are pushing spending higher.
- In the two decades from 2001 to 2021, as the US debt-GDP ratio more than tripled, debt service fell from 2.0 percent to 1.5 percent of GDP.

### Major economic shocks and structural drivers
- Two very large shocks increased national debt: the global financial crisis and the COVID-19 pandemic; revenues fell and spending rose due to fiscal stimulus.
- Political polarization has reduced prospects for bipartisan fiscal consolidation; the Simpson-Bowles Commission (2010) example noted but lacked follow-through.
- Lack of observable damage from debt (until recently) muted political pressure; recent sharp growth in debt service reverses that trend.
- Subtle economic costs already observed: increased US external imbalance and potential crowding out of productive domestic private investment.

### Scenarios, risks, and projections
- Some project that the US debt-GDP ratio will nearly double in size over the next three decades.
- Two fiscal-path scenarios:
  - Gradual path: national debt and interest rates continue to rise; debt service consumes an increasing share of government revenues; political opposition may eventually weaken enabling compromise or the government may borrow more to delay cuts.
  - Sudden path: current trajectory continues until borrowing becomes too expensive, producing abrupt fiscal stress; timing uncertain but described as “far away at this point.”
- Impending policy triggers: exhaustion of Social Security and Medicare trust funds projected to occur within the next decade could force tax increases, benefit cuts, or additional borrowing (reference to the 1983 precedent).

### Policy options and political economy constraints
- The US has capacity to enact tax and spending reforms to achieve fiscal sustainability, but progress depends on political realignment and restoration of bipartisan action.
- Reforms historically require bipartisan agreement to be politically viable.
- Policy trade-offs emphasized in broader IMF discussion:
  - High public debt and rising borrowing costs reduce fiscal space and crowd out priorities.
  - Net interest payments in the US climbed from about 2 percent of GDP before the pandemic to 4.2 percent in 2025—surpassing defense spending—and are set to rise further.
  - Global public debt climbed to 93.9 percent of GDP in 2025 and is on track to breach 100 percent by 2028.
  - In low-income countries, interest payments consume 21 percent of tax revenues on average.
- Recommended fiscal frameworks:
  - Credible medium-term fiscal anchors with escape clauses for rare shocks.
  - Transparent plans prioritizing investment while protecting the vulnerable.
  - Institutional frameworks (e.g., independent fiscal councils, spending evaluations, tax expenditure reports) to build credibility.
  - Prudent management of public wage bills, efficient procurement, reduction of special tax regimes and pension privileges, and strong oversight of state-owned enterprises.

### Trust, public perceptions, and distributional fairness
- Public trust is central: surveys show limited fiscal literacy and skepticism:
  - About 42 percent of respondents understood that raising taxes or cutting spending would reduce a government deficit.
  - More than 60 percent underestimated their country’s debt-to-GDP level, especially in high-debt countries.
- Trust effects:
  - Respondents who report more trust in their government are 20 percent more likely to believe policies will stabilize or reduce public debt.
  - Those with greater trust are 17 percent more likely to expect a positive impact on their own welfare from debt-reduction policies.
- Mistrust dynamics:
  - Repeated austerity without visible benefits, corruption, or misuse of funds erodes confidence and makes reform politically costly.
  - Perceived unfairness (who bears the burden) drives opposition across income and demographic groups.
- Building trust requires competence, transparency, and fairness; specific institutional measures cited to rebuild trust include independent fiscal councils and improved public financial management.

### Intergenerational considerations and priorities
- Demographic trends increase fiscal pressures:
  - Advanced economies: about three workers per retiree now, down from roughly four in 2000; heading toward two workers by 2050 (OECD 2025).
- High and persistent deficits financed by debt transfer burdens to future taxpayers; concern that much recent borrowing financed current consumption rather than growth-enhancing investment.
- Policy dilemma: invest now (infrastructure, education, climate resilience) versus preserve fiscal firepower for future shocks; countries that exhaust borrowing capacity in good times risk dangerous exposure in the next downturn.

### Key statistics and numeric highlights
- Nearly $500 billion projected savings from the Bush-era agreement over five years.
- One Big Beautiful Bill Act cost: about $2 trillion over the next five years (enacted July 2025 context).
- US unemployment: just over 4 percent (July 2025 context).
- US deficits projected to rise from 5.5 percent to 5.9 percent of GDP by 2030.
- Debt service in the US: fell from 2.0 percent to 1.5 percent of GDP between 2001 and 2021; net interest payments climbed to 4.2 percent of GDP in 2025.
- Global public debt: 93.9 percent of GDP in 2025; on track to breach 100 percent by 2028.
- Estimated capital expenditure for global data centers by 2030: $6.7 trillion (AI-related context).
- In low-income countries, interest payments consume 21 percent of tax revenues on average.
- Survey fiscal literacy: about 42 percent understood tax/spending reduce deficits; more than 60 percent underestimated debt-to-GDP.

*Italic line: Source: fd-mar26-thedebtreckoning - 4.0 percent to 1.8 percent of GNP.*

### references

### fd-mar26-thedebtreckoning - references

### References cited
- Bianchi, Francesco, Era Dabla-Norris, and Salma Khalid. 2025. “Perceptions of Public Debt and Policy Expectations: Evidence from Cross-Country Surveys.” NBER Working Paper 34382, National Bureau of Economic Research, Cambridge, MA.
- Cao, Yongquan, Era Dabla-Norris, and Enrico Di Grigorio. 2024. “Fiscal Discourse and Fiscal Policy.” IMF Working Paper 24/194, International Monetary Fund, Washington, DC.
- International Monetary Fund (IMF). 2024. World Economic Outlook: Policy Pivot, Rising Threats. Washington, DC, October.
- International Monetary Fund (IMF). 2025. Fiscal Monitor: Fiscal Policy under Uncertainty. Washington, DC, April.
- Organisation for Economic Co-operation and Development (OECD). 2025. Pensions at a Glance 2025. Paris.

### Stabilizing debt in advanced economies (Darvas and Zettelmeyer): findings and projections
- Horizon and methodology:
  - 20-year horizon starting in 2024, divided into a seven-year first period and a 13-year second period.
  - In the first seven years, governments raise the primary balance to a level that ensures debt sustainability.
  - In the following 13-year period, governments keep the primary balance constant, excluding spending changes driven by an aging society.
  - Aim: ensure a 70 percent probability that the fiscal adjustment in the first period stabilizes the debt ratio over the final five years of the 20-year horizon.
- Sample country required long-term primary balance to stabilize debt:
  - France: 1.3 percent of GDP.
  - United States: 1.3 percent of GDP.
  - Belgium: 1.8 percent of GDP.
  - United Kingdom: 1.8 percent of GDP.
  - Italy: 2.5 percent of GDP.
- Adjustment needs relative to 2024 deficits:
  - About a dozen countries require adjustments of more than 3 percent of GDP.
  - Five countries—France, Poland, Romania, the Slovak Republic, and the US—need adjustments of 5 percent relative to 2024.
- Historical precedents and feasibility:
  - Primary balances at required stabilization levels are rare historically. Example: France’s needed primary surplus of 1.3 percent of GDP has occurred only six times in five decades.
  - Many countries’ official plans rely on macroeconomic assumptions more optimistic than common methodologies (example: Germany’s plan assumes higher inflation and growth than expert forecasts).
  - Forecasts by the European Commission and the IMF suggest countries with the biggest adjustment needs are unlikely to deliver the measures needed to stabilize debt.
- Positive case studies:
  - Greece in 2024 posted a primary balance of 4.0 percent, adjusted for swings in the business cycle.
  - Portugal needs a minor adjustment of 0.5 percent of GDP.
  - Ireland’s required adjustment: 1.9 percent of GDP; Ireland’s debt ratio: 39 percent of GDP.
  - United States debt ratio: 122 percent of GDP.
  - United Kingdom debt ratio: 101 percent of GDP.
- Growth outcomes after fiscal adjustment (examples):
  - Greece, Portugal, and Ireland achieved average annual growth between 3.1 percent and 4.2 percent in 2022–25, exceeding the US pace of 2.6 percent.
- Scenarios for adjustment:
  - Best outcome: growth-enhancing reform plus deep reforms to social security and pension systems, and tax overhauls to raise revenue without discouraging growth (noted political difficulty; US lacks a value-added tax).
  - More likely path: shift in political leadership prioritizing fiscal discipline without deep reform (example: Italy’s cyclically adjusted primary balance of 0.3 percent of GDP amid a debt ratio of roughly 135 percent of GDP).
  - Hard-landing scenario: sudden spike in borrowing costs leading to debt distress, rising interest rates, financial repression attempts, or surprise inflation with eventual higher nominal interest rates.

### Fiscal-monetary coordination under geopolitical fragmentation (Corsetti and Melosi): findings, risks, and policy implications
- Central problem:
  - Advanced economies face high and rising public debt combined with persistent inflation; the textbook remedy is coordinated monetary tightening plus credible fiscal adjustment.
  - Geopolitical fragmentation and frequent supply disturbances weaken this policy mix and central bank independence.
- Theoretical mechanism and risks:
  - When central bank tightens to reduce inflation, real interest rates rise and growth slows, widening the primary deficit and raising the real debt burden unless government cuts spending or raises taxes.
  - Without credible fiscal backing, aggressive tightening can trigger an uncontrolled inflationary spiral as higher debt-service costs intensify inflation pressure (citing Bianchi and Melosi 2019).
  - Supply shocks weaken fiscal backing more than demand shocks (citing Smets and Wouters 2024), complicating coordination.
- Historical context:
  - Monetary-fiscal coordination helped offset deflationary forces in the 2010s; the 1970s oil shocks show coordination can collide with supply disruptions and produce prolonged inflation.
  - Post-pandemic coordinated monetary-fiscal support contributed to persistently high inflation amid supply-chain disruptions and Russia’s invasion of Ukraine.
- Policy options and practical trade-offs:
  - Controlled fiscal inflation: pragmatic tolerance for temporary and moderate inflation may aid gradual, sustainable adjustment when debt is high; success requires avoiding loss of inflation-fighting credibility.
  - Central banks can smooth or delay price adjustment when government bonds are not indexed to inflation, effectively buying time on the expectation of future fiscal corrections or productivity gains (example: hopes for an AI-driven productivity boom).
  - Effective communication is essential: authorities must assure markets of their ability to stabilize public debt via reforms and supply-side containment while delivering plausible broad-based productivity gains.
- Institutional considerations:
  - The US and the UK have mechanisms (explicit rules and unwritten guidelines) that partially stabilize debt through inflation; the euro area lacks a meaningful federal budget and debt, complicating institutional equilibrium.
  - Geopolitical fragmentation may prompt governments to raise revenues via taxing trade or adopt financial repression (tighter regulation and capital controls), which risks stagflationary shocks and disruptive international spillovers.
- Emerging market vulnerabilities:
  - Geopolitical shocks can threaten hard-won credibility of local-currency debt markets; controlled inflation could help address fiscal imbalances but also tempt authorities to engineer large inflation surprises that undermine prior progress.
- Global policy recommendation:
  - Macroeconomic stability and fiscal sustainability are global public goods that require enhanced international cooperation, adherence to legal norms, and effective international institutions.
  - Extended unconventional collaboration that integrates internal and cross-border policies could help keep the world economy on a path to sustainable fiscal adjustment.

_Italic source: fd-mar26-thedebtreckoning - references (IMF PDF content provided)_

### references

### references

### Major findings
- The US Treasury market, long seen as highly liquid and resilient, has shown episodes of abrupt dysfunction in recent years, notably in March 2020 and April 2025.
- Market dysfunctions are driven more by structural market dynamics among asset managers, hedge funds, and broker-dealers than by macroeconomic factors such as changes in interest rates.
- Central bank intervention was necessary in March 2020 to restore functioning, but the scale and form of intervention (large-scale, unhedged Treasury purchases) blurred the line between market-function support and monetary policy.

### Market structure and vulnerabilities
- Publicly held federal debt to GDP is now about 100 percent, and given the current US fiscal stance, this ratio will keep rising.
- The supply of Treasuries has expanded rapidly while traditional intermediaries, especially bank-affiliated broker-dealers, have not expanded balance sheets commensurately.
- Post–2008 regulations (e.g., the supplementary leverage ratio) and heightened risk management make it costly for dealers to hold large inventories of Treasuries.
- Institutional asset managers (pension funds, insurance companies, mutual funds, ETFs) often obtain duration exposure via derivatives (Treasury futures and interest rate swaps) while holding higher-yielding cash assets, increasing reliance on hedge funds and dealers to arbitrage cash and derivative markets.
- Hedge funds finance long cash-Treasury positions by borrowing as much as 99 percent of the overall position in the repurchase (repo) market.
- Dealers’ limited balance sheet capacity constrains their ability to absorb large flows during stress, crowding out market-making and repo intermediation activities.

### Stress dynamics and the March 2020 episode
- Rapid forced unwinding of hedge-fund basis trades can produce fire-sales of cash Treasuries, divergence between cash and derivative prices, widened bid-ask spreads, evaporating liquidity, and deteriorating repo funding conditions.
- In March 2020, as the COVID-19 shock intensified:
  - Investors sold Treasuries alongside riskier assets to raise cash.
  - Hedge funds facing margin calls rapidly exited basis trades.
  - Dealers’ balance sheets were strained, forcing cutbacks in market making and repo intermediation.
  - The Federal Reserve purchased roughly $1.6 trillion in Treasury securities in a few weeks, restoring market functioning but raising concerns about the intervention’s monetary-policy signaling.
- Federal government debt could exceed 170 percent of GDP by the mid-2050s, according to the Congressional Budget Office (as cited in Chart 1).

### Policy recommendations and proposed interventions
- Recommendation: Not more frequent intervention, but better-designed, more surgical intervention when market functioning breaks down.
- Proposed narrower intervention: Fed purchases of cash Treasuries that are hedged against interest rate risk by simultaneously selling Treasury futures or entering equivalent derivative positions, keeping the operation duration-neutral.
  - Economic equivalence: Such hedged purchases are essentially a repurchase transaction in economic terms, differing mainly in the counterparties to each side of the trade.
- Advantages of hedged, duration-neutral interventions:
  - Relieves pressure on dealer balance sheets more effectively than unhedged purchases because dealers avoid significant unhedged interest rate exposure.
  - Separates market-function support from monetary policy, avoiding unintended monetary easing signals—particularly important during periods of higher inflation.
  - Obviates the need for potentially problematic commitments to quickly unwind purchases, since duration-neutrality is built in ex ante.
  - Limits the Fed’s interest rate exposure and reduces the risk of large ex post losses to taxpayers.

### Moral hazard and mitigation
- Central bank backstops can create moral hazard if arbitrageurs expect intervention whenever basis trades move against them, potentially encouraging greater leverage.
- Hedged interventions are arguably less prone to moral hazard than unhedged purchases, which can establish an absolute floor or “Fed put” for bond prices.
- A “penalty-rate” approach can mitigate moral hazard:
  - Allow basis spreads to widen beyond normal levels and cap only extreme dislocations.
  - Intervene only at clearly dysfunctional thresholds and allow some private-sector losses, thereby mitigating worst-case outcomes without fully insulating hedge funds from risk.

### Policy lesson and readiness
- Treasury market dysfunctions stem from a market structure that relies on leveraged balance sheet intermediation to absorb a rapidly growing supply of government debt; this amplifies shocks when stress occurs.
- The March 2020 intervention was necessary but used a tool that was too blunt and hard to disentangle from monetary policy.
- Preparing surgical, duration-neutral tools in advance should allow future interventions to stabilize markets more effectively and with fewer undesirable side effects.
- The central question going forward is whether the central bank will be ready with the right tools as the Treasury market continues to grow.

### Key statistics and exact figures (preserved)
- "about 100 percent" (ratio of publicly held federal debt to GDP is now about 100 percent)
- "99 percent" (hedge funds borrow as much as 99 percent of the overall position in the repo market)
- "roughly $1.6 trillion" (Fed purchased roughly $1.6 trillion in Treasury securities in a few weeks)
- "170 percent of GDP" and "mid-2050s" (Federal government debt could exceed 170 percent of GDP by the mid-2050s, according to the Congressional Budget Office)
- Chart 1 axes/timepoints listed in source: "0 20 40 60 80 100 120 140 160 180 1900 1925 1950 1975 2000 2025 2050 Projected"

*From: F&D, March 2026. Anil K Kashyap and Jeremy C. Stein.*

### references

### References

### Debt and inequality — Key findings from "The Debt-Inequality Cycle"
- Top 1 percent held roughly 42 percent of all wealth during the Great Depression.
- Top 1 percent’s wealth share rose from about 22 percent in 1980 to roughly 35 percent in 2010.
- After 2008, public debt increased and private credit remained broadly flat relative to GDP; total credit to GDP continued to rise roughly at the earlier pace but almost entirely because public debt increases.
- US fiscal deficit is projected to be about 6 percent of GDP.
- Policy implication: persistent excess saving at the top can force governments to run larger, ongoing deficits to avoid prolonged slumps; deficits must avoid being “too cold” or “too hot.”

### China — Shift from external surplus to domestic debt
- China’s current account surplus approached 10 percent of GDP on the eve of the 2008 financial crisis.
- As China’s external surplus receded after 2008, domestic debt to GDP rose sharply, including corporate, local government, and household borrowing.
- Finding: when advanced economies could no longer absorb exported saving via private credit, China shifted from net lending abroad toward domestic credit expansion to support demand.
- Analytical point: rising total debt to GDP has not translated into higher investment to GDP; much debt financed consumption rather than investment, a dynamic described as “indebted demand.”

### Sub-Saharan Africa — The new face of African debt (findings and policy recommendations)
Key findings
- The region pivoted from external to domestic borrowing; most of sub-Saharan Africa’s public debt is now domestic.
- No countries in sub-Saharan Africa issued Eurobonds between spring 2022 and January 2024.
- The median country in sub-Saharan Africa issued domestic debt at an average of 8.8 percent interest in 2024.
- Ghana’s 2023 domestic debt restructuring led to issuance only of T-Bills maturing in under a year, with an average outstanding maturity of less than three months as of November 30, 2025.
- A typical government in the region spends about one-seventh of its revenue on interest payments alone.
- The sovereign-bank nexus is growing fastest in low-income countries in the region, driven by banks’ large holdings of government debt.

Policy recommendations and risk management measures
- Treat domestic debt-market development as part of a broader economic strategy rather than a crisis response.
- Build trust through transparent and credible debt management to gradually extend maturities and reduce rollover risk.
- Maintain strong fiscal policies, transparent debt practices, and clear debt sustainability strategies.
- Strengthen legal and regulatory frameworks, public financial management, and public investment management to ensure debt funds finance growth-enhancing investments.
- Expand the domestic investor base (pension funds, insurance companies, other long-term private capital) to diversify demand for government debt.
- Strengthen banks and nonbank financial institutions through smart regulation and supervision to avoid crowding out private credit.
- Consider allowing foreign investors to purchase domestic debt to lower yields and increase liquidity—but manage risks from potentially volatile nonresident flows (“hot money”) and ensure adequate data on debt ownership.
- Recognize that stable macroeconomic conditions (low inflation, sustainable debt burdens, sound fiscal management) are essential prerequisites for successful domestic debt-market development.

### Charts and empirical notes (exact values cited)
- Chart references and data sources cited: IMF, Global Debt Database; World Bank; Balance of Payments Manual; African Debt Database; World Bank, International Debt Statistics; IMF, World Economic Outlook Database; author’s calculations.
- Time ranges and dates cited in analysis: 1980–2008 (precrisis), 2008 onward (postcrisis); 2000–2024 in regional debt composition charts; 2015–24 distribution of debt maturity by instrument.
- Specific country examples cited: Ghana (post-2023 restructuring), Mauritius and Tanzania (examples of lengthened maturities).

*Source: fd-mar26-thedebtreckoning - references (PDF chapter/section).*

### references

### References

### Cited works
- Alter, A., K. Khandelwal, T. Lemaire, H. Mighri, C. Sever, and L. Tucker. 2025. “Navigating the Evolving Landscape of External Financing in Sub-Saharan Africa.” IMF Working Paper 25/139, International Monetary Fund, Washington, DC.
- Barrail, Z., S. Dehmej, and T. Wezel. Forthcoming. “The Sovereign-Bank Nexus in Emerging Market and Developing Economies: Trends, Determinants, and Macrofinancial Implications.” IMF Working Paper, International Monetary Fund, Washington, DC.

### Sovereign‑bank nexus — key captioned statistics and chart annotations
- Caption: Banks in sub-Saharan Africa’s low-income countries with high exposure to government debt are especially susceptible to damaging feedback loops between sovereigns and banks.
- SOURCE: Barrail, Dehmej, and Wezel, forthcoming; and IMF staff calculations. NOTE: EMs = emerging market economies; LICs = low-income countries.
- Chart annotations and values (preserved exactly as presented):
  - 5010152025
  - +3.2% Other EMs
  - +2.9% African EMs
  - African LICs
  - +4.8%
  - CHART 3 (government debt as percent of bank assets)
  - +3.3% Other LICs
  - 2019
  - 2024

*Source: fd-mar26-thedebtreckoning - references (PDF).*

### 1.4 billion liters, resulting in excise duty losses of

### fd-mar26-thedebtreckoning - 1.4 billion liters, resulting in excise duty losses of

### Scope and scale of cross-border tax erosion
- Cross-border movement of low-taxed tobacco products contributed to smuggling or displacement totaling 1.4 billion liters, resulting in excise duty losses of some €4 billion annually.
- Paraguay’s low tobacco taxes have turned it into a hub for cigarettes traveling to higher-tax neighbors; these cheap products make up roughly 20 percent of Brazil’s cigarette market.
- The displacement of Paraguay-origin cigarettes costs Brazil about $400 million in lost revenue each year.

### Drivers and challenges
- Cross-border shopping and illicit trade exploit tax differentials and evolving product lines.
- Illegal cross-border shopping can be mitigated by stricter enforcement, but enforcement alone is insufficient.
- Loopholes, misaligned incentives, and fragmented policy approaches enable revenue losses and sustained public health harms.

### Policy analysis and principles
- Excise taxation should be linked to relative health risks to reduce preventable diseases while supporting sustainable revenues.
- Comprehensive and consistent application of harm-based tax regimes is necessary to avoid erosion from new product offerings and consumption shifts.
- Tax systems must adapt as consumption patterns and product offerings evolve to preserve both public health objectives and fiscal revenue.

### International coordination and institutional roles
- Effective solutions require closer dialogue across countries and stronger consensus on the classification of ever-evolving new product lines to curb cross-border arbitrage and illicit trade.
- Global institutions such as the IMF, and regional bodies like the EU and the African Union, are pivotal in advancing frameworks that:
  - align taxation with harm;
  - promote innovation toward safer products;
  - strengthen public health and fiscal resilience.

### Key statistics
- 1.4 billion liters — volume associated with cross-border movement referenced in the text.
- €4 billion — estimated annual excise duty losses.
- 20 percent — share of Brazil’s cigarette market accounted for by cheap products originating from Paraguay.
- $400 million — estimated annual revenue loss to Brazil from Paraguay-origin cigarettes.

*F&D — christoph b. rosenberg and marius van oordt.*

### references

### fd-mar26-thedebtreckoning - references

### References cited
- Ahmed, M., and M. Shafik. 2025. “The Case for Health Taxes.” Finance & Development, April 18.
- European Commission (EC). 2025. “Impact Assessment Report Accompanying the Document—Proposal for a Council Directive on the Structure and Rates of Excise Duty Applied to Tobacco and Tobacco Related Products.” Brussels.
- Murkett, R., M. Rugh, and B. Ding. 2022. “Nicotine Products Relative Risk Assessment: An Updated Systematic Review and Meta-analysis.” F1000Research 9:1225.
- Van Oordt, M., and V. Mensah. 2024. “Reforming Excise Taxation to Reduce Social Inequalities.” G20 Brasil 2024 T20 Task Force 01 Policy Brief, Brasilia.
- Eaves, D., D. Coyle, B. Vasconcellos, and S. Deshmukh. 2025. “The Economics of Shared Digital Infrastructures: A Framework for Assessing Societal Value.” IIPP Policy Report 2025/02, University College London Institute for Innovation and Public Purpose, London.

### Misaligned health taxes (chart summary)
- Theme: Alignment of tax rates with relative harm across product categories in G20 countries.
- Products considered: Sugary Beverages; Tobacco; Alcohol.
- Country observations listed (chart labels preserved): Argentina; Australia; Brazil; Canada; China; France; Germany; India; Indonesia; Italy; Japan; Mexico; Russia; Saudi Arabia; South Africa; South Korea; Türkiye; United Kingdom; United States.
- Alignment categories defined in source note:
  - Untaxed
  - Misaligned: Some products are untaxed and others misaligned.
  - Partial alignment: All or most products are taxed, but relative rates distort incentives (e.g., noncombustible products are taxed like combustible products).
  - Strong alignment: Tax rates are proportionate to relative health risk or harm across all or the majority of subproducts.

### Digital Infrastructure — substantive findings and policy recommendations
- Key findings:
  - Over 64 national digital identity programs, 97 digital payment systems, and 103 data exchange platforms identified by a global DPI mapping initiative.
  - Only about half of national ID systems are used by more than two public services.
  - South Africa has eight national data exchange platforms operating in isolation.
  - Workshops with treasury and finance officials from over 50 countries highlighted DPI’s potential to reduce duplication, cut administrative costs, improve tax collection, and strengthen oversight.
  - A common constraint: “There’s no category in the budget for systems that benefit everyone but belong to no one.”
  - Examples of country roles:
    - UK: GOV.UK Notify as a benchmark; GOV.UK Pay and GOV.UK One Login under debate for financing and assessment.
    - Uganda: Ministry of Finance and the National Planning Authority introduced a programmatic budgeting model requiring agencies to submit IT needs collectively; procurement policies require clearance from the national information technology regulator.
    - Cambodia: CamDX, a data exchange platform, initially focused on business registration and expanded functionality.
  - Appraisal and financing issues:
    - Traditional cost-benefit analysis tends to undersell DPI by overlooking cross-sector spillovers, distributional aspects, and long-term returns.
    - Dispersion of DPI spending across many budget lines complicates long-term planning.
    - Officials emphasized the need for early visible value even when broader benefits may take years to materialize.
  - State capacity concerns:
    - Siloed development reduces ability to integrate data and respond with new programs.
    - Fragmentation weakens government credibility and agility, especially during crises.
  - Crisis example:
    - During COVID, the US allocated $800 billion to its Paycheck Protection Program; at best, only between a quarter and a third of those resources reached the workers most in need, while the rest ended up with wealthier households.
- Policy recommendations and stewardship roles for finance ministries:
  - Treat core digital systems (digital IDs, payments, data exchange platforms, credentials, shared services) as long-term shared infrastructure comparable to roads and power grids.
  - Embed DPI considerations in public investment management frameworks and multiyear budgeting plans.
  - Use finance ministry authority to steer adoption: align ministries, set standards, mandate repurposing of existing resources, and enforce shared use through budget and procurement processes.
  - Adopt a spectrum of engagement roles:
    - Evaluator: assess digital proposals with an eye toward infrastructural potential.
    - Coordinator and enforcer: use budget processes to align investments, veto duplication, and promote shared options.
    - Implementer (rare): directly manage core DPI components.
  - Prioritize governance, financial sustainability, long-term stewardship, and maintaining public trust to avoid a “graveyard of pilot projects.”

### Gold — substantive findings and economic context
- Historical and monetary role:
  - Bretton Woods tied the US dollar to gold at $35 per ounce; Nixon suspended official gold convertibility in 1971.
- Investment refuge and recent price dynamics:
  - Gold price history referenced: price rose 20-fold in the 1970s; passed $1,000 per ounce during the 2008 crisis; touched record highs near $2,000 in 2020.
  - Central bank purchases noted: China, India, Türkiye, and Poland led purchases exceeding 1,100 metric tons.
  - Recent price movements reported in the source:
    - Gold soared above $4,000 an ounce in late 2025.
    - Prices rose about 40 percent, the biggest yearly increase since 1979.
    - Gold holdings in US exchange-traded funds increased more than 40 percent, approaching $200 billion.
    - Prices rose above $5,000 an ounce amid deepening geopolitical divisions in early 2026 before dropping back below $4,700.
- Structural supply and demand facts (numeric fidelity preserved):
  - Global mining adds barely 1.5 percent to the total above-ground stock each year.
  - Every ounce ever mined: about 210,000 metric tons.
  - Households in India estimated to hold more than 25,000 metric tons.
  - People’s Bank of China holdings: surpassing 2,300 metric tons.
  - Reserve Bank of India holdings: about 880 metric tons.
  - Bitcoin’s fixed supply referenced as 21 million coins (contrast to gold’s physical permanence).
- Economic interpretation:
  - Gold’s enduring value rests on scarcity, durability, and trust; it is perceived as a political hedge and a sovereign shield outside counterparty and state networks.
  - Gold’s price tends to rise when real interest rates turn negative or when confidence in monetary policy erodes; it performs poorly during stable inflation and robust growth.
  - Recommended portfolio allocation cited as often 5–10 percent to gold for balance rather than returns.
- Geopolitical and trade impacts linked to transport research:
  - Closing the Suez Canal would reduce world trade by 3.5 percent, and in the Middle East trade would fall by a quarter and welfare metrics plunge.
  - Shipping and trade research highlights:
    - The maritime shipping industry enables $20 trillion a year in international trade.
    - Dataset examples: tracking 5,398 ships; price and route data based on 12,007 shipping contracts.
    - Empirical findings: ships sail empty close to half the time.
    - Shipping market volatility: the Baltic Dry Index quadrupled then plunged more than 90 percent in late 2008.

*Italicized source: fd-mar26-thedebtreckoning - references (source PDF content provided).*

### 2007. Kalouptsidi was just beginning to

### fd-mar26-thedebtreckoning - 2007. Kalouptsidi was just beginning to 

### Career background and research focus
- Kalouptsidi grew up “between transportation and theory”; mother: civil engineer, father: mathematician and computer scientist.
- Education timeline and milestones:
  - Undergraduate: economics at the University of Athens.
  - 2005: earned a master’s in economics at Athens University of Economics and Business.
  - 2011: completed doctorate at Yale; American Economic Review published her thesis on how the time it takes to build bulk cargo ships affects investment in vessels.
- Primary research areas:
  - Industrial policy.
  - How transportation and trade broadly affect economies.
  - Dynamics of shipping booms and busts and their macroeconomic reflections.

### Early industry engagement and mentoring
- Mid-2000s industry exposure:
  - 2007: began thinking about container shipping; received printouts and data on vessel routes, charter rates, fleet sizes, and commercial databases from contacts in Piraeus.
  - Mentor: George Banos (veteran broker and consultant; died in 2015); provided data, anecdotes, and Martin Stopford’s Maritime Economics.
- Research collaborators mentioned: Brancaccio, Papageorgiou, Nicola Rosaia (Columbia Business School); Panle Jia Barwick; Nahim Bin Zahur.

### Findings on industrial policy and shipbuilding subsidies
- China’s industrial policy in shipbuilding:
  - 2002: China was a small player when it set a goal of becoming the world’s top shipbuilder by 2015; it achieved that goal through state-subsidized shipyards, generous loans, and other support.
- Methodological contribution:
  - Built a model to detect subsidies by identifying deviations between data and standard economic theory predictions; integrated detailed industry knowledge with a structural framework.
- Quantified impacts of subsidies:
  - Subsidies propped up many weak shipyards, inflated prices, sidelined more efficient producers, and left governments paying heavily for ineffective industrial ambitions.
  - Domestic producers recorded only modest profit gains—and their long-term returns amounted to only 18 percent of the total of subsidies, the authors write.
- Reallocation effects:
  - China’s support reallocated global ship production and took market share from Japan.

### Port infrastructure and network effects
- Research with Brancaccio and Papageorgiou on major US facilities found:
  - Ports in a region function like a network.
  - Investment in one port can reduce congestion elsewhere by enabling more efficient loading and faster departures.
  - Policy implication: capital investment should be coordinated and targeted across ports.

### Container shipping research frontiers
- Differences between bulk carriers and container ships:
  - Bulk carriers likened to “taxis”: sail point-to-point on demand; ownership decentralized.
  - Container ships likened to “buses”: follow fixed routes; ownership concentrated in a handful of companies; container pricing often private and harder to obtain.
- New data availability enabling research:
  - Automatic identification system tracking of vessel names, locations, and other parameters is more complete.
  - Researchers now have samples of some specific container rates and routes, enabling renewed work on containerization with collaborators Brancaccio, Papageorgiou, and Nicola Rosaia.

### Broader economic implications
- Shipping as critical infrastructure:
  - “Shipping is basically the spine of the economy. You want to trade? You need ships.”
  - Shocks to maritime trade can impair trade flows and have serious consequences, including for inflation.
- Scholarly and policy influence:
  - Work provides policymakers with frameworks for assessing how subsidies and capacity expansions reshape global competition and trade patterns.
  - Recognized by peers (quotes from Dani Rodrik and Laurent Daniel).

### Teaching style and mentorship
- At Harvard, Kalouptsidi is described as:
  - Asking incisive questions rather than giving direct answers.
  - Helping students “get unstuck—clarifying mechanisms, sharpening research questions, and encouraging you not to shy away from ambitious ideas.”
- Former students include Constanza Abuin (joining Johns Hopkins University as an assistant professor) and praise from Yixin Zhou (Harvard doctoral candidate).

*Finance & Development, March 2026 (article content).*

---


_Source: https://www.imf.org/-/media/files/publications/fandd/article/2026/03/fd-mar26-thedebtreckoning.pdf_