Navigating the Challenge of Managing Public Debt: Strategies for Sustainable Debt Management in Advanced Economies

The challenge of managing public debt is a pressing issue for many advanced economies, with debt levels reaching unprecedented heights in the wake of the global financial crisis and the COVID-19 pandemic. As of 2023, general government gross debt exceeded $68 trillion, marking 111% of the gross domestic product (GDP).

Historical data shows that advanced economies have successfully reduced debt-to-GDP ratios in the past through various strategies such as high growth, inflation, fiscal surpluses, and financial repression. However, the landscape of public debt has drastically changed since then, with debt ratios climbing approximately 20 percentage points between 1990 and 2007.

The implications of high levels of public debt are significant, including increased financial market volatility, structurally slower growth, and higher interest rates. The International Monetary Fund (IMF) has warned of the risk of “higher for longer” interest rates, which could have international repercussions.

To address the challenges posed by high public debt, potential solutions include fiscal consolidation, growth-enhancing reforms, debt restructuring, transparency and collaboration, investment in sustainable development, improving public spending efficiency, and strengthening institutional frameworks.

It is crucial for advanced economies to prioritize discussions on public debt and implement effective strategies for sustainable debt management. The long-term health of the global economy may hinge on the actions taken today to address the risks associated with high levels of public debt.