Since the outbreak of the pandemic, public debt surged from 103.8% to 120% on average in advanced economies and from 54% to 63.4% in developing countries, with significant differences among them. After the COVID-induced economic crisis, a new financial crisis may arise, wherever it comes from. Debt relief measures for poor countries were launched by the Saudi G20 and have been recently strengthened by the Italian G20 presidency. Are they sufficient or should they be further enhanced?
In Japan, both the population and the birthrate are declining while the population is aging. In the manufacturing industry that supports the Japanese economy skilled workers are also aging and in short supply. For this reason, manufacturing companies are increasing their productivity by implementing digital technology in order to make up for this shortage of skilled workers.
In February 2021, President Xi announced that China had won the war against extreme poverty, lifting 100 million Chinese people out of poverty. Since gaining power in 2012-13, Xi had included anti-poverty objectives among China’s three “tough battles,” alongside risk prevention and pollution control.
The developmental state has been a central feature of the East Asian economic miracle, which has made possible the region’s rapid growth towards prosperity while lifting millions of people across Asia out of poverty.
The economic harm being caused by the novel coronavirus may soon result in multiple sovereign debtors moving into default territory. But the existing playbook for dealing with multi-sovereign emerging market debt crises is blank.
COVID-19 has further exacerbated the debt situation in sub-Saharan Africa (SSA). Prior to the pandemic about half of low-income countries (LICs) were at high risk of debt distress or in debt distress, including a large number of LICs in SSA. A shift in the composition of debt from concessional to non-concessional financing needed to finance infrastructure and human capital development contributed to higher debt levels.
Of the six government defaults recorded in the world in 2020, four were in Latin America and the Caribbean (LAC). Not just that: in 2020 four other countries in the region benefitted from the debt service suspension initiative (DSSI) set up by the G20. Indeed, according to the latest World Economic Outlook (IMF, April 6, 2021), in 2020 general government gross debt in the area as a whole rose by about 9 percentage points of GDP, giving Latin America and the Caribbean the unenviable record of most indebted region in the developing world.
In 2013, Chinese president Xi Jinping officially charted the idea of the Belt and Road Initiative (BRI) during an official visit to Kazakhstan. From mines to railways, China embarked in a large number of infrastructure projects to enhance land and maritime trade connectivity. There was never a clear target in terms of the amount of investments needed for the BRI to be successful, though official estimates hovered between 4 and 8 trillion USD.
The pandemic has caused a very large increase in public and private debt all over the world. The G20 is deeply involved, in particular, in dealing with sustainability issues of poorest countries’ debt. In order to advance on this front, several measures are under discussion, including debt cancellation, various forms of restructuring, international risk sharing, and an increase in common debt issued via multilateral financial institutions.
The G20 measures in 2020 to support low income countries (LICs) facing unsustainable debt burdens were intended to give nations the space to mitigate consequences of the virus and rebuild their economies in a manner consistent with development and climate goals. It has now become acutely apparent that such efforts were incomplete and inadequate. It is paramount that the G20 build on past work on debt relief and supplement it with new thinking and financing.