Global Waves of Debt:

Causes and Consequences

The global economy has experienced four waves of debt accumulation

over the past fifty years. The first three debt waves ended with financial
crises in many emerging and developing economies. The latest, since
2010, has already witnessed the largest, fastest and most broad-based
increase in debt in these economies. Their total debt has risen by 54
percentage points of GDP to a historic peak of almost 170 percent of GDP
in 2018. Current low interest rates mitigate some of the risks associated
with high debt. However, emerging and developing economies are also
confronted by weak growth prospects, mounting vulnerabilities, and
elevated global risks. A menu of policy options is available to reduce the
likelihood of the current debt wave ending in crisis and, if crises were to
take place, alleviate their impact.

To shed light on the implications of the rapid debt accumulation, Global

Waves of Debt presents the first in-depth analysis of the main features of
global and national debt accumulation episodes, analyzes the linkages
between debt accumulation and financial crises, and draws policy lessons.

Global Waves of Debt was launched on December 19, 2019, at an event that

featured a conversation between World Bank Group President David
Malpass and Kenneth Rogoff (Harvard University) followed by a panel
discussion, moderated by World Bank Group VP Ceyla Pazarbasioglu, with
Jahangir Aziz (J.P. Morgan), Valentina Bruno (American University), Anna
Gelpern (Georgetown University), and Steve Kamin (Federal Reserve
Board). 
In this era of low volatility and extremely low global real interest
rates, both the private and public sectors in emerging markets have
been borrowing at a strong pace. Is another crisis looming or are we
in a new normal? Global Waves of Debt  puts the current debt wave in
context by systematically comparing its features with the three major
earlier emerging market debt waves since 1970, all of which ended in
widespread crises. Is this time different? Deeply researched and with
many novel insights, this book will be a useful reference for
policymakers and academics alike."

  --  Kenneth Rogoff, Harvard University

"After a decade of slow growth and low interest rates, the world is
awash in debt—issued by households, corporations, and especially
governments. It is tempting to believe that with interest rates as low
as they are today, including in emerging markets, much higher debt
levels are sustainable indefinitely. This book’s impressive review of
history and theory cautions against complacency and argues for
proactive policies to buttress macroeconomic and financial stability.
All analysts of the global economy’s past trajectory and future
prospects will want to read this book. Hopefully, policymakers in
authority, whether madmen or not, will do so as well—before the
next crisis hits."

--  Maurice  Obstfeld, University of California, Berkeley

"The increase in debt around the world, and in particular in emerging

market economies, is one of the most important global
developments in recent years. It is also one of the main sources of
risk to global financial stability and economic growth. Global Waves of
Debt  is an important contribution to understanding the process of
rapid debt accumulation and its risks. It draws lessons from the
experience of previous waves of debt build up through an
outstanding comparative approach. Although the post crisis wave is
very different from previous ones, sudden and large changes in risk
appetite or global interest rates could nonetheless have severe
negative repercussions in many economies. Policymakers must take
the necessary steps to ensure that the consequences from this wave
are also different from previous ones, and the insights from this book
are of great help in this regard.

-- José De Gregorio, The University of Chile

"Just as it is easy for economies to get flooded by waves of debt, so it

is easy for readers to drown in a sea of books and articles on debt.
But this time the experience is different. Global Waves of Debt
provides not only a very well-researched analysis of the history of
debt over the last five decades with many new insights into its good
and bad consequences, but it does so in an easy read. While it leaves
one worried in light of the current, ongoing wave of debt, one will
enjoy the ride."

--  Stijn Claessens,  Bank for International Settlements

"This timely and important book documents the global experience of

the four waves of public and private debt accumulation from 1970 to
the present. The authors skillfully surf through the data, dissecting
the cross-country experience from each episode with a focus on
emerging and developing economies. They extract the key lessons
from the thoroughly documented experience of the first three waves
and map these into the current wave, which began in 2010. The
rigorous exploration yields a better understanding of the fourth wave
and possible future scenarios. The previous waves of debt ended in
crises in many countries. The authors expertly explore whether the
implications of the current wave could be different and what role
policy can play. This book is an essential resource for anyone
interested in the history and prospects of national, regional, and
global public and private debt."

-- Warwick McKibbin, Australian National University

"As debt levels surge around the world, a comprehensive and

systematic examination of previous episodes of debt accumulation—
and how they end—is just the sort of analysis for these times. How
the current experience compares against previous episodes, and the
special conditions that currently prevail—including extremely low real
interest rates—is examined in detail. Those who read the book
thinking they already know the post-war history of debt will be
surprised, and enlightened."

--  Menzie Chinn, University of Wisconsin

"This book is a timely contribution to the debate on the implications

of global borrowing for economic performance. Taking a historical
perspective, Kose, Nagle, Ohnsorge, and Sugawara provide a clear
articulation of the potential vulnerabilities raised by the exceptionally
large and rapid current buildup of global indebtedness.  The book
documents well how current indebtedness positions are an artifact of
our low interest rate environment, and illustrates the extent to which
borrowing nations would face challenges given an abrupt change in
global conditions.  It closes with an inspection of how pursued
policies have affected historical outcomes in the wake of disruptive
shocks to borrowing capacities, and discusses the implications of
these experiences for current policy.  Arguments in the narrative are
supported by a large array of empirical evidence that will be of use to
researchers and practitioners alike. I would recommend this book
most highly to anyone interested in international financial issues."

--  Mark M. Spiegel, Federal Reserve Bank of San Francisco

"Global Waves of Debt  has done a signal service by reminding us that

this time may be no different. In the current environment of low
growth rates and interest rates, which are expected to remain low for
the foreseeable future, and monetary policy at a seeming dead end
globally, calls for fiscal stimulus and increased debt are becoming the
flavor of the day in both advanced and emerging markets. The
authors’  painstaking work reveals that the increase in debt globally
has already been larger, faster, and more broad-based since the
Great Financial Crisis than in the previous three waves. This should
be seen as a leading indicator for the possibility of financial crises
ahead and shake up the complacency that is evident in
macroeconomic policy making today with regard to increasing levels
of both public and private debt. Kudos to the authors for their fine
analytical work in putting together this unprecedented volume that
puts the current situation in comparable historical perspective."