The government debt-to-GDP ratio in Asia-Pacific has increased to an 18-year high in 2021 mainly due to large fiscal deficits
Source: IMF, World Economic Outlook database (October 2022).
General government gross debt of developing Asia-Pacific region
Factors explaining changes in public debt in developing Asia-Pacific
Source: ESCAP, based on World Bank Debt Management Monitor and IMF Article IV reports.
Some new thinking on how public debt can foster sustainable development
Current thinking
High public debt is bad for economic growth and stability
There is a common ‘optimal’ public debt level that can be applied to different countries
Current approaches on debt sustainability analysis focus on maintaining ‘debt sustainability’ in the short term, leading to fiscal consolidation and limited governments’ access to financial resources for SDGs.
New thinking
Public debt is a powerful tool for development, if used judiciously and with a long-term horizon
“Appropriate” public debt level is country-specific, depending on progress and ambitions on sustainable development.
Need to revamp conventional debt assessment tools that have a short-term horizon.
ESCAP public debt sustainability analysis can ‘augment’ short term-focused conventional approaches
Augmented public debt sustainability analysis
Additional spending needs to meet SDGs
Structural development policies
National SDG financing strategies
Stress tests and contingent liabilities
Government debt comes down in the long run: balancing ‘temporarily’ higher debt for large socioeconomic and environmental gains
Government debt-to-GDP ratio in Mongolia
Public debt rises initially …
Large SDG spending needs
Rising interest payments amid higher risk premium and borrowing costs
… but trends down afterwards
Higher tax revenue: carbon tax and reduced tax avoidance
Fiscal savings: carbon subsidy cancellation and spending efficiency
Lower borrowing costs: greater debt transparency
Source: ESCAP.