Following the COVID-19 pandemic, global public debt received reemerging attention. Many countries combat the economic downturn through
, often financed through loans, meaning that public debt increased afterward. Particular interest has been devoted to the
had to be raised several times in recent years. Moreover, developing countries tend to rely on loans to boost their economies and to finance public expenses, but often face poor loaning conditions, and debt repayments make up a significant amount of some countries' government expenses.
What is the public debt?
Public debt, often also called government debt, is financial liabilities owed by a state to creditors. The creditors can be both
internal, meaning that they are based within the said country, or
external, meaning that they are foreign creditors. Public debt is usually measured in terms of
gross debt, which includes all liabilities, but can also be stated in terms of
net debt, which is the total debt burden less financial assets. Countries can borrow money from
private, bilateral, and multilateral creditors. Of the latter, the World Bank and the International Monetary Fund (IMF) are two of the most well known. While they offer important credit to countries in need, they have also been criticized for having too market-oriented loaning conditions, and for being part of a system that favors developed countries over developing countries.
When public debt becomes a threat
While certain levels of debt are often considered necessary to keep the state apparatus running, too high debt levels can ultimately lead to a debt crisis. This means that a country is unable to repay its liabilities, and creditors do not want to lend more money due to the country's poor economic condition. This was perhaps most famously seen in Greece following the 2008-2009
global financial crisis. The crisis in Greece started to unfold when it became clear that the Greek government had been underreporting its debt and budget deficit, at the same time as the effects of the financial crisis hit the Greek economy hard. Moreover, as a part of the Eurozone, it had limited autonomy and financial flexibility to combat the crisis with measures otherwise used to counter high debt levels. Ultimately, Greece was lent support packages by the IMF, Eurogroup, and the European Central Bank, and the government had to impose austerity programs, causing rapidly rising
unemployment rates and
increasing poverty.
Public debt in developing countries
While the public debt is higher in
developed economies than in
developing, the debt is
increasing faster in the latter countries. Moreover, due to their weak economic conditions, developing countries are forced to borrow at significantly higher interest rates, with particularly African countries having high
borrowing costs. As a result, developing countries pay the highest
debt interest payments relative to their gross domestic product (GDP). Furthermore, China, the world's second-largest economy, is struggling with growing
public debt levels amid slowing economic growth and a crisis in the real estate sector. Some experts fear that the country may even be facing a financial crisis.
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