over 2010-19, to 36 percent of GDP in 2019. In 2019, more than 85 percent of public external debt were owed to official creditors, including multilateral institutions.

By EMDE region, the fastest increase in debt was in East Asia and Pacific (EAP), where total debt rose by 78 percentage points of GDP to 238 percent of GDP between 2010-19, mainly driven by China (Table 2).<sup>1</sup> Even excluding China, where the debt buildup was most pronounced, total debt in the region increased by 21 percentage points of GDP to 114 percent of GDP over 201019. Across EMDE regions, the largest increase in government debt was in Sub-Saharan Africa (SSA) where it rose by 25 percentage points of GDP to 53 percent of GDP, while Latin America and the Caribbean (LAC) and Middle East and North Africa (MNA) also saw increases in government debt of more than 20 percentage points of GDP. This increase primarily occurred after 2014, and was due, in large part, to the sharp decline in commodity prices during this period, which led to significant fiscal deficits in commodity-exporting countries, particularly in these three regions.

In contrast, government debt in Europe and Central Asia (ECA) rose the least, increasing by just two percentage points of GDP to 29 percent of GDP during 2010-19. The only region to see a decrease in total debt was South Asia (SAR) where it declined by 5 percentage points of GDP, driven by a decline in private sector debt. SSA also saw a small decrease in private sector debt, although this was offset by a much larger increase in government debt.

While the buildup of total debt in EMDEs was mostly with domestic creditors, this was heavily driven by China, whose total debt buildup was almost all domestic. In contrast, in EMDEs excluding China, external and domestic creditors contributed more equally and one-third of total debt is to external creditors. External debt in EMDEs excluding China rose by 9 percentage points of GDP between 2010 and 2019, to 38 percent of GDP at end-2019, and domestic debt also rose by 15 percentage points of GDP, to 82 percent of GDP at end-2019.<sup>2</sup> The fourth wave was preceded by three previous debt waves since the 1970s, all of which ended with widespread financial crises. The first global wave of debt spanned the 1970s and 1980s, with borrowing by governments in Latin America and in LICs, particularly in Sub-Saharan Africa. This wave saw a series of financial crises in the early 1980s. The second wave ran from 1990 until the early 2000s as banks and corporations in EAP and governments in ECA borrowed heavily and ended with a series of crises in these regions in 1997-2001. The third wave was a runup in private sector borrowing in ECA (as well as in advanced economies), which ended when the global financial crisis disrupted bank financing in 2007-09 and tipped many economies into sharp recessions. The fourth wave of debt was the largest, fastest, and most broad-based yet among EMDEs (Kose et al. 2021; Figure 3).

The fourth wave of debt shared several features with the previous three waves: a low interest rate environment and the emergence of new financial instruments or financial market actors. Of particular concern was that the fourth wave had seen a protracted period of weak investment and slowing growth despite surging debt. In other respects, the fourth wave differed from its predecessors: policy frameworks were stronger in some EMDEs and debt in advanced economies was broadly flat. Yet, even before the pandemic, there was no room for complacency. Previous crises had frequently been triggered by exogenous shocks that resulted in a sharp increase in

> 1 This study follows the World Bank classification of six EMDE regions: East Asia and Pacific (EAP), Europe and Central Asia (ECA), Latin America and the Caribbean (LAC), Middle East and North Africa (MNA), South Asia (SAR), and Sub-Saharan Africa (SSA).

> 2 Domestic debt is estimated as the residual after the reduction from total debt (as reported in Kose et al. 2021) of external debt as reported by the World Bank.

3