Current low-interest rates —which markets expect to be sustained in the medium term—appear to mitigate some of the risks associated with high debt. However, emerging market and developing economies (EMDEs) also face weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood of the current debt wave ending in crises and if crises were to take place, to alleviate their impact.
1. Debt has reached a record-high
Total EMDE debt also reached an all-time high of about 170 percent of GDP in 2018, an increase of 54 percentage points of GDP since 2010.
2. Post-crisis debt accumulation has been exceptionally rapid
1970-89, 1990-2001, 2002-09, and since 2010. The latest wave, which started in 2010, has been the largest, fastest and most broad-based increase of the four.
3. Both private and public sectors have been accumulating debt
Rapid increases in debt are common among EMDEs. Between 1970 and 2009, the sector accumulating debt shifted from the public to the private sector. However, since 2010, both governments and private sectors have rapidly accumulated debt.
4. Rapid debt buildup has, in the past, been associated with financial crises.
Episodes with crises featured significantly weaker output, consumption and investment growth.