The Problem with Debt

• Author: Camilla Lund Andersen
• Position: Editor-in-Chief
• Pages: 2-2

2 FINANCE & DEVELOPMENT | March 2018

The Problem

with Debt

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

EDITOR'S LETTER

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.

Angus Deaton

prof‌iled P.34

Digital

crusaders P.40

Ethics and

economics P.54

MARCH 2018

Balancing Act

Managing the Public Purse

FINANCE & DEVELOPMENT

A Quarterly Publication of the

International Monetary Fund

EDITOR-IN-CHIEF:

Camilla Lund Andersen

MANAGING EDITOR: Maureen Burke

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