• Login
NORVANREPORTS.COM |  Business News, Insurance, Taxation, Oil & Gas, Maritime News, Ghana, Africa, World
  • Home
  • News
    • General
    • Political
  • Economy
  • Business
    • Agribusiness
    • Aviation
    • Banking & Finance
    • Energy
    • Insurance
    • Manufacturing
    • Markets
    • Maritime
    • Real Estate
    • Tourism
    • Transport
  • Technology
    • Telecom
    • Cyber-security
    • Cryptocurrency
    • Tech-guide
    • Social Media
  • Features
    • Interviews
    • Opinions
  • Reports
    • Banking/Finance
    • Insurance
    • Budgets
    • GDP
    • Inflation
    • Central Bank
    • Sec/Gse
  • Lifestyle
    • Sports
    • Entertainment
    • Travel
    • Environment
    • Weather
  • NRTV
    • Audio
    • Video
No Result
View All Result
No Result
View All Result
NORVANREPORTS.COM |  Business News, Insurance, Taxation, Oil & Gas, Maritime News, Ghana, Africa, World
No Result
View All Result
Home Business

How to tackle soaring public debt

2 years ago
in Business, Economy, Features, highlights, Home, home-news, latest News
2 min read
0 0
0
955
VIEWS
Share on FacebookShare on TwitterShare on Linkedin

How to tackle soaring public debt

Public debt soared to a record during the pandemic, topping global gross domestic product. Now, with government debt still elevated, the rise in interest rates and the strong US dollar are adding to interest costs, in turn weighing on growth and fueling financial stability risks.

With several economies already in debt distress, we explore in an analytical chapter of our latest World Economic Outlook what policies work best to durably reduce public debt ratios (or debt to GDP).

Using two decades of data, we find that an adequately tailored fiscal contraction of about 0.4 percentage point of GDP—the average size in our sample—lowers the debt ratio by 0.7 percentage point in the first year and up to 2.1 percentage points after five years.

But the timing of the adjustment can impact what effect it has. The probability of reducing debt ratios through consolidation improves from the baseline (average) of about half to three-quarters when undertaken during a domestic and global boom or periods during which financial conditions are loose and uncertainty is low.

Design also matters. In advanced economies, spending cuts are more likely to lower debt ratios than increasing revenues. Odds of success also improve when fiscal consolidation is reinforced by growth enhancing structural reforms and strong institutional frameworks.

This explains why fiscal consolidation hasn’t typically reduced debt ratios in the past—the right conditions and accompanying policies weren’t present.

RelatedPosts

Parliament Adjourns Sine Die After Intense Legislative Session Marked by Reform Calls and Tributes

GACL Terminates Evatex Revenue Assurance Contract Amid OSP Probe

Cyber Security Authority Flags Rising Mobile Data Scam, Cautions Public

There are important factors for why fiscal consolidation alone didn’t reduce the debt ratio level in about half of the cases: first fiscal consolidation tends to slow GDP growth( see Chapter 3 of the 2010 WEO). Second, exchange rate fluctuations and transfers to state-owned enterprises or contingent liabilities can offset debt reduction efforts. These “below-the-line” operations can increase debt, despite improvements in the primary balance (which would ordinarily drive down debt). Examples include unexpected transfers that the government provided to state-owned enterprises in Mexico (2016), and clearance of payments past due by the government in Greece (2016), which were all recorded as below the line items in the fiscal account.

Debt restructuring

While well-designed fiscal consolidation and growth-friendly structural reforms can help reduce debt ratios, they may not be sufficient for countries in debt distress or facing increased rollover risks. In such cases, debt restructuring—a renegotiation of the terms of a loan—may be necessary.

Restructuring is typically used as a last resort. It’s a complex process that requires the agreement of domestic and foreign creditors and involves burden sharing between different parties (for example, between residents and banks in most domestic restructurings). It can incur significant economic costs and there are reputational risks and coordination challenges.

But when combined with fiscal consolidation, it can significantly reduce debt ratios—on average, up to 8 percentage points or more after 5 years in emerging markets and low-income countries.

Seychelles, for example, had a debt ratio of over 180 percent in 2008, when the global financial crisis hit. After debt restructurings with both official Paris Club and private external creditors that involved a large reduction in face value of debt, this ratio sharply declined to 84 percent in 2010. Prudent fiscal policy combined with high GDP growth helped sustain the reduction in debt ratios.

We also found that it matters how deep the restructuring is. Public debt in Belize remained elevated despite two sequential restructurings, suggesting that even when done early, debt will stay high if the treatment is not deep enough. By contrast, debt ratios in Jamaica were significantly reduced with early and deep restructurings that were executed through an extension of maturity and a reduction in coupon payments rather than a reduction in the face value of debt. Notably, the fiscal space created by the debt service relief from restructuring was saved, as reflected in its strong fiscal consolidation.

For countries that can afford a moderate and gradual reduction in debt ratios, it’s best to undertake fiscal consolidation when conditions are favorable, along with policies that include structural reforms aimed at promoting growth. Having strong institutional frameworks can prevent “below the line” operations that undermine debt reduction efforts and ensure that countries indeed build buffers and reduce debt during good times.

Countries facing increased funding pressures or already in debt distress may have no viable alternative than a substantial or rapid debt reduction. Fiscal consolidation will likely be needed to regain market confidence and recover macroeconomic stability in these countries. In addition, policymakers should also consider timely debt restructuring. If pursued, the restructuring will need to be deep to reduce debt ratios.

For restructurings to succeed, global policymakers must also promote mechanisms to enhance coordination and confidence among creditors and debtors. The Group of Twenty Common Framework should be improved to bring greater predictability, earlier engagement, a payment standstill, and further clarification on comparability of treatment.

Tags: How to tackle soaring public debtPublic Debt
No Result
View All Result

Highlights

Gov’t Reopens Talks With PayPal to Restore Full Service Access in Ghana

Financial Sector Assets up 34.6% in 2024 to GHS 525.59 Billion

Banking Sector Soundness Remains Robust in 2024 Amid Strong Profitability, Adequate Capital Buffers

Sha’Carri Richardson Withdraws from US Trials Following Arrest

From Singuluma to El Kaabi: Can CHAN 2024 Unleash the Next Hat-trick Hero?

Ghana to Welcome King’s Baton Relay on August 8 Ahead of 2026 Commonwealth Games

Trending

Features

Parliament Adjourns Sine Die After Intense Legislative Session Marked by Reform Calls and Tributes

August 2, 2025

Parliament Adjourns Sine Die After Intense Legislative Session Marked by Reform Calls and Tributes Parliament has adjourned...

GACL Terminates Evatex Revenue Assurance Contract Amid OSP Probe

August 2, 2025

Cyber Security Authority Flags Rising Mobile Data Scam, Cautions Public

August 2, 2025

Gov’t Reopens Talks With PayPal to Restore Full Service Access in Ghana

August 2, 2025
Bank of Ghana

Financial Sector Assets up 34.6% in 2024 to GHS 525.59 Billion

August 2, 2025

Who we are?

NORVANREPORTS.COM |  Business News, Insurance, Taxation, Oil & Gas, Maritime News, Ghana, Africa, World

NorvanReports is a unique data, business, and financial portal aimed at providing accurate, impartial reporting of business news on Ghana, Africa, and around the world from a truly independent reporting and analysis point of view.

© 2020 Norvanreports – credible news platform.
L: Hse #4 3rd Okle Link, Baatsonaa – Accra-Ghana T:+233-(0)26 451 1013 E: news@norvanreports.com info@norvanreports.com
All rights reserved we display professionalism at all stages of publications

No Result
View All Result
  • Home
  • Business
    • Agribusiness
    • Aviation
    • Energy
    • Insurance
    • Manufacturing
    • Real Estate
    • Maritime
    • Tourism
    • Transport
    • Banking & Finance
    • Trade
    • Markets
  • Economy
  • Reports
  • Technology
    • Cryptocurrency
    • Cyber-security
    • Social Media
    • Tech-guide
    • Telecom
  • Features
    • Interviews
    • Opinions
  • Lifestyle
    • Entertainment
    • Sports
    • Travel
    • Environment
    • Weather
  • NRTV
    • Audio
    • Video

Welcome Back!

Login to your account below

Forgotten Password?

Create New Account!

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
NORVANREPORTS.COM | Business News, Insurance, Taxation, Oil & Gas, Maritime News, Ghana, Africa, World
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.