When the debt crises hit, don’t simply blame the pandemic! By Marcello Estevao & Sebastian Essl

Every debt crisis begins with unheeded warnings and ends with severe limits on investment in education, health, and infrastructure among other things. These crises often spark civil unrest and government collapse, delivering a lasting setback to the growth prospects of the affected country.

In the wake of the COVID-19 pandemic, global debt has surged. Today, 58 percent of the world’s poorest countries are in debt distress or at high risk of it , and the danger is spreading to some middle-income countries as well. High inflation, rising interest rates, and slowing growth have set the stage for financial crises of the type that engulfed a series of developing economies in the early 1980s.

But it would be a mistake to pin the blame on the pandemic should those crises arrive. The seeds were sown long before COVID-19. Between 2011 and 2019, public debt in a sample of 65 developing countries increased by 18 percent of GDP on average--and by much more in several cases. In sub-Saharan Africa, for example, debt increased by 27 percent of GDP on average.