In the conclusions, we emphasize that whereas none of the options for dealing with high debt is particularly attractive, it is important to be aware of the complete menu of options discussed in the academic literature to be prepared to make informed choices, should a need arise. The difficulties associated with debt reduction policies also raise questions of global governance for future research, including to what extent the richest countries can cast their net wider to cushion prospective shocks to EMDEs.

Lastly, we note that our focus here is on those countries that have managed to maintain continued market access, after initial outflows at the onset of the pandemic. This includes lower middleincome countries that can access international capital markets. This is not to understate the huge distress facing the low-income countries (LICs), many of whom do not have market access; in fact, almost half of the LICs entered the pandemic either in or near debt distress (World Bank 2019a).<sup>1</sup> However, on average low-income countries are borrowing 25 percent of their government debt from the official sector rather than the market and face somewhat different issues from those discussed here.

# **<mark>II. The post-pandemic debt landscape</mark>**

# **II.1. Unprecedented debt levels**

In 2020, global debt rose by 29 percentage points of GDP, to 262 percent of GDP—the largest single-year increase since at least 1970 (Figure 2). This large increase was broad-based, evident across government and private debt, across domestic and external debt, and in the majority of countries. In EMDEs, total debt had reached 206 percent of GDP—its highest level since at least 1970. This increase was mainly, but not solely, driven by China: in about 90 percent of EMDEs, debt was higher in 2020 than in 2010 and, in a half of EMDEs, more than 30 percentage points of GDP higher. In advanced economies, total debt reached 300 percent of GDP in 2020.

_Government debt._ In 2020, amid the worst recession since World War II and unprecedented fiscal stimulus, global government debt registered its fastest single-year jump since 1970 to its highest level in half a century, 97 percent of GDP (Kose et al. 2021).<sup>2</sup> Government debt rose in almost nine-tenths of countries and at its fastest pace in at least half a century in one-quarter of countries. It reached 120 percent of GDP in advanced economies, the highest since the post-World War II 1 In LICs, government debt rose to 66 percent of GDP in 2020, and has become increasingly nonconcessional over the past decade as they have accessed capital markets and borrowed from non-Paris Club creditors (World Bank 2018). In many, the largest part of official bilateral debt is now to non-Paris-Club creditors while the share of bilateral debt to Paris Club creditors and multilateral creditors has declined (Bredenkamp et al. 2019). China, in particular, is now the largest official creditor to some of these countries (Horn, Reinhart, and Trebesch 2020). Of the global population categorized as extremely poor (less than $1.90 per day), about two-fifths live in low-income countries (World Bank 2021).

2 The increase in government debt in 2020 reflected both output collapses and sharp deteriorations in primary fiscal balances, but the contribution of the output collapse to the government debt buildup in 2020 was less than half of that of large primary fiscal deficits, in advanced economies and EMDEs alike (Kose, Ohnsorge, and Sugawara forthcoming).

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