2 FINANCE & DEVELOPMENT | March 2018
WITH THE GLOBAL ECONOMY humming along, there would seem little reason
to worry about tomorrow. But in many countries, the future has be en mort-
gaged by high public and private debt, which risks choking oﬀ grow th. In
this issue of F&D we ask, “How much is too much debt?”
e problem with debt is that it keeps countries from investin g in future
growth—putt ing more resources toward education and health, for insta nce,
and ﬁnding ways to addre ss low productivity, which continues to hold back
wages in many countr ies.
In simple terms, advanced economies ca n either raise taxes or lower spending
to reduce debt. Alberto Alesi na, Carlo Favero, and Francesco Giavazzi ﬁnd
that countries ta ke a smaller hit to growth if they cut spending —including
for entitlement programs—tha n if they raise ta xes. In fact, the latter can
be self-defeating, lead ing to even higher debt and lower growth, they write.
But with growing concern over inequal ity, social spending cuts can
be hard to justify. e World Bank’s former chief economist, François
Bourguignon, reviews how best to address rising inequa lity and assess
diﬃcult trade-oﬀ s.
In low-income and emerging market economies, the cha llenge is to expand
the tax base a nd increase the eﬃciency of public spending. Unlike previous debt
crises, which were resolved throu gh international collaboration, today’s crises
are more diﬃcult to ﬁx bec ause the debt landscape is more complex, writes
Fanwell Bokosi of the Afric an Forum and Network on Debt and Development.
With no easy solutions in sight, and electorates ever ywhere losing patience
with the status quo, governments should use the cu rrent upswing to put their
house in order. And while each countr y must chart its own course, the globa l
recovery presents a rare opportun ity—rising interest rates will soon ma ke it
harder to reﬁnance and service debt.
CAMILLA LUND ANDERSEN, Editor-in-Chief
ON THE COVER
Some debt is a good thing, but excessive amounts can stifle growth. Illustrator Michael
Waraksa’s March 2018 F&D cover shows the stark choice countries face between spending
and saving—and the difficulty of striking the right balance.
Managing the Public Purse
FINANCE & DEVELOPMENT
A Quarterly Publication of the
International Monetary Fund
Camilla Lund Andersen
MANAGING EDITOR: Maureen Burke
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