## Bringing Down High Debt

_IMF Blog, April 18, 2018_

## Source details

**Canonical URL:** [Bringing Down High Debt](https://www.imf.org/en/blogs/articles/2018/04/18/bringing-down-high-debt)

## Other formats

- [Markdown version](/en/blogs/articles/2018/04/18/bringing-down-high-debt/index.md)
- [Structured JSON version](/en/blogs/articles/2018/04/18/bringing-down-high-debt/index.json)
- [Bundle manifest](/en/blogs/articles/2018/04/18/bringing-down-high-debt/bundle-manifest.json)

## Bibliographic details
- Authors: Vitor Gaspar, Laura Jaramillo
- Published: April 18, 2018

---

### Overview
- Global debt hit a new record high of $164 trillion in 2016, the equivalent of 225 percent of global GDP.
- Both private and public debt have surged over the past decade, making governments’ financing vulnerable to sudden changes in market sentiment and limiting their ability to provide support in a downturn or financial crisis.
- The April 2018 Fiscal Monitor explores how countries can reduce government deficits and debt in a growth-friendly way.

### Why high government debt is a concern
- Of the $164 trillion, 63 percent is nonfinancial private sector debt, and 37 percent is public sector debt.
- Advanced economies are responsible for most global debt, but emerging market economies have driven most of the increase in the last ten years.
- China alone contributed 43 percent to the increase in global debt since 2007.
- Low-income developing countries’ contribution to the global increase is barely noticeable, though their debt climbed 13 percentage points in the last five years.
- Public debt ratios:
  - In advanced economies, debt-to-GDP ratios are at levels not seen since World War II and have been increasing persistently over the past fifty years.
  - In emerging market economies, public debt is at levels seen only during the 1980s’ debt crisis.
  - In low-income developing countries, average public debt-to-GDP ratios are well below historic peaks (noting earlier reductions involved debt forgiveness).
- Debt service burden in low-income developing countries has doubled in the past ten years to close to 20 percent of taxes, reflecting greater reliance on nonconcessional debt and expanded domestic debt issuance to nonresidents.
- High government debt and deficits increase vulnerability to changing financing conditions and can increase the depth and duration of recessions because governments may be unable to deploy sufficient fiscal support.

### Timing: why now is the right moment to act
- As growth gains momentum in most countries, fiscal stimulus to support demand is no longer appropriate.
- Fiscal multipliers are expected to be smaller now, implying limited benefits from short-term fiscal stimulus and relatively smaller economic costs of reducing debt and deficits.
- Reducing debt and deficits now will:
  - Diminish a country’s vulnerability to changing market sentiment.
  - Ensure policymakers have sufficient resources to act in case of a downturn—precisely when fiscal multipliers are larger.

### Projections and country-specific notes
- Overall forecasts indicate debt-to-GDP ratios would come down over the next three to five years in most countries, conditional on countries delivering fully on their policy commitments.
- Public debt ratios are forecasted to come down in all advanced economies except one:
  - United States: the revised tax code and the two-year budget agreement lead to an expansion in economic activity until 2020, but give rise to overall deficits above $1 trillion over the next three years, which is more than 5 percent of GDP, bringing government debt to 117 percent of GDP in 2023.
- Forecasts are qualitatively similar to those recently published by the Congressional Budget Office.

### Policy recommendations
- Avoid fiscal policies that provide unnecessary stimulus when economic activity is already picking up.
- Most advanced, emerging market, and low-income developing countries should:
  - Deliver on their fiscal plans and put deficits and debt firmly on a downward path.
  - Enact fiscal reforms that increase productivity and promote human and physical capital.
- Low-income developing countries should strengthen their tax capacity to:
  - Service their debt.
  - Finance spending priorities—such as health, education and public infrastructure—to attain the 2030 Sustainable Development Goals.

*Vitor Gaspar, Laura Jaramillo — April 18, 2018*

---


## References

- [Fiscal Monitor](http://www.imf.org/en/Publications/FM/Issues/2018/04/06/fiscal-monitor-april-2018)
- [https://www.imf.org/wp-content/uploads/2018/04/copy-eng-april-10-fmch1-3.jpg](https://www.imf.org/wp-content/uploads/2018/04/copy-eng-april-10-fmch1-3.jpg)
- [https://www.imf.org/wp-content/uploads/2018/04/eng-april-10-fmch1.jpg](https://www.imf.org/wp-content/uploads/2018/04/eng-april-10-fmch1.jpg)
- [October 2016 Fiscal Monitor](https://www.imf.org/en/Publications/FM/Issues/2016/12/31/Debt-Use-it-Wisely)
- [https://www.imf.org/wp-content/uploads/2018/04/eng-april-12-fmch1-1.jpg](https://www.imf.org/wp-content/uploads/2018/04/eng-april-12-fmch1-1.jpg)

_Source: https://www.imf.org/en/blogs/articles/2018/04/18/bringing-down-high-debt_