## Debt Is Not Free

_IMF Working Papers, January 3, 2020_

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**Canonical URL:** [Debt Is Not Free](https://www.imf.org/en/publications/wp/issues/2020/01/03/debt-is-not-free-48894)

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## Bibliographic details
- Authors: Marialuz Moreno Badia, Paulo A Medas, Pranav Gupta, Yuan Xiang
- Published: January 3, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513523767.001

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### Summary
- Title: "Debt Is Not Free"
- By Marialuz Moreno Badia, Paulo A Medas, Pranav Gupta, Yuan Xiang
- Date: January 3, 2020
- Abstract-level finding: With public debt soaring across the world, a growing concern is whether current debt levels are a harbinger of fiscal crises, thereby restricting the policy space in a downturn. The empirical evidence to date is however inconclusive, and the true cost of debt may be overstated if interest rates remain low.
- Research approach: Re-examines the importance of public debt as a leading indicator of fiscal crises using machine learning techniques to account for complex interactions previously ignored in the literature.

### Key Findings
- Public debt is the most important predictor of crises, showing strong non-linearities.
- Beyond certain debt levels, the likelihood of crises increases sharply regardless of the interest-growth differential.
- Interactions of public debt with inflation and external imbalances can be as important as debt levels.
- Results do not necessarily imply causality but indicate that governments should be wary of high public debt even when borrowing costs seem low.

### Methodology and Scope
- Uses machine learning techniques to account for complex interactions previously ignored in the literature.
- Focus is on public debt as a leading indicator of fiscal crises and on how interactions with macroeconomic variables affect crisis probability.

### Policy Implications
- High public debt warrants caution even if borrowing costs are low.
- Policymakers should account for non-linear risks associated with debt levels.
- Interactions between public debt, inflation, and external imbalances should factor into fiscal risk assessments and policy design.

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_Source: https://www.imf.org/en/publications/wp/issues/2020/01/03/debt-is-not-free-48894_