Chapter 3: Coming Right down to Earth: The right way to Deal with Hovering Public Debt
Public debt as a ratio to GDP soared the world over throughout COVID-19 and is anticipated to stay elevated, posing a rising problem for policymakers, notably as actual rates of interest are rising the world over. Chapter 3 examines the effectiveness of various approaches to lowering debt-to-GDP ratios. Primarily based on econometric analyses and complemented with a assessment of historic experiences, the chapter reaches three most important conclusions. First, adequately timed and appropriately designed fiscal consolidations have a excessive likelihood of durably lowering debt ratios. Second, when a rustic is in debt misery, a complete method that mixes important debt restructuring—renegotiation of phrases of servicing of present debt—fiscal consolidation, and insurance policies to help financial development can have a big and long-lasting impression on lowering debt ratios. Coordination amongst collectors is important. Lastly, financial development and inflation have traditionally contributed to lowering debt ratios.