Minerva Lab

A new look at public debt sustainability
di Ludger Schuknecht

Public debt sustainability is essential for economic growth and prosperity, for social stability and for mastering decarbonisation and geopolitical challenges. However, public debt is at record highs and the most indebted countries are the largest advanced economies. Moreover, sustainability risks may be even higher than we think: Tightening government financing conditions amidst major financial imbalances could stoke further costly financial crises. Ineffective and uncompetitive public sectors undermine growth and stability prospects. Corporate zombification and the disintegration of global value chains adversely affect long-term growth and inflation prospects. And there is the risk of more crisis like COVID or the military conflict in Ukraine. Finally, debt sustainability has become a global and systemic challenge: highly-indebted, large countries account for as much as 60% of the global economy. The sustainability of public finances should, therefore, feature more prominently in countries’ strategies to boost their economic, financial and social resilience.

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A new look at public debt sustainability

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