debt if it becomes unsustainable. The global community needs to act rapidly and forcefully to make sure the fourth wave does not end with a string of debt crises in EMDEs, as earlier waves did.

The paper makes three contributions to the literature. First, it presents the first comprehensive assessment of the impact of the pandemic on debt. Some studies have discussed the recent debt buildup in the context of the implications of the interest rate-growth differential for advanced economies (Reis 2021); others have discussed the debt buildup in EMDEs in the context of the need for debt resolution (Bolton et al. 2021; G30 2021; Friedrich-Ebert-Stiftung and Consensus Building Institute 2021); yet others have explored the consequences of the pandemic for corporate debt (Aldasoro, Hardy, and Tarashev 2021; Brunnermeier and Krishnamurthy 2020). IMF (2021a, 2021b) analyzes the government debt buildup caused by the pandemic and its implications for fiscal policies. None of these present a comprehensive assessment of the evolution of different types of debt over time or document the global, group-specific, and regional dimensions of the recent debt buildup.

Second, the paper provides the first analysis of the evolution of debt in the years following global recessions. Typically, debt has risen after recessions. As such, it is critical to avoid complacency among policy makers who may have optimistic views about debt prospects in the near-term after the 2020 global recession. Some policy makers may be tempted to rely on growth alone to lower debt while some others hope that low interest rates would help keep debt service manageable. The study also amplifies the findings of previous work that points to overoptimistic government debt forecasts at the country level (Estefania Flores et al. 2021a).

Third, the paper explains why it is difficult to resolve debt by presenting a detailed discussion of the new challenges posed by record debt levels and changes to the structure of debt markets. A few earlier studies have flagged some of these issues before the pandemic (Essl et al. 2019; Gelpern 2016; Kose et al. 2020, 2021); this paper provides a structured analysis and documents how the pandemic has amplified them. This is important as it helps policy makers to prepare for the potential need to resolve debt by considering these challenges.

The rest of the paper is structured as follows. Section II describes the extent of debt accumulation prior to the pandemic and how the fourth wave of debt differentiated itself from the previous three waves. Sections III and IV explain why the fourth wave has turned into a tsunami because of the sharp increase in debt during the pandemic and a few specific factors that have made the ongoing debt wave more dangerous. Section V discusses some new challenges associated with the current debt wave that have made lasting debt relief more difficult going forward. Section VI analyzes the evolution of debt following the previous global recessions and discusses debt prospects in the near-term after the 2020 global recession. Section VII focuses on the consequences of policy inaction in response to rapid debt accumulation episodes. Section VIII concludes with a summary of policy lessons.

# II. Prior to the Pandemic: The Fourth Wave of Debt Accumulation

Prior to the COVID-19 pandemic, starting in 2010, a fourth wave of global debt accumulation was underway, with the largest, fastest, and most broad-based increase in debt in EMDEs in five decades (Figure 1). Global debt had risen to a record high of 233 percent of GDP in 2019 and government debt to a record 84 percent of GDP (Figure 2; Table 1). In EMDEs, total debt had reached 180 percent of GDP, led by private debt which rose to 126 percent of GDP. This increase was mainly, but not solely, driven by China: in four-fifths of EMDEs, debt was higher in 2019 than in 2010 and, in two-fifths of them, debt was 20 percentage points of GDP higher.

In low-income countries (LICs), total debt increased by 20 percentage points of GDP over 201019, to 72 percent of GDP at end-2019. Total external debt rose by 12 percentage points of GDP 2