Public debt in 2020
A sustainability analysis for DM and EM economies

The global crisis has caused a hitherto unseen fiscal expansion. In
light of surging public debt the issue of debt sustainability has increasingly
attracted attention. In this paper we analyse public debt sustainability in both
developed and emerging economies. Our country sample consists of 38
countries, 21 emerging markets (EMs) and 17 developed markets (DMs),
together accounting for roughly 85% of world GDP.
Public finances have already become or are at risk of becoming
unsustainable in many DMs as well as in a few EMs. In this context,
public debt sustainability goes beyond the absence of sovereign default. We
understand debt sustainability as a sovereign’s ability to service debt without
large adjustments to revenue and/or expenditure as well as the lack of an everincreasing
public debt burden.
At the moment, public debt sustainability is mainly a problem of
DMs. At least half of the DMs in our country sample will have to implement
stringent fiscal consolidation programmes over the next few years in order to
prevent already high public-debt-to-GDP ratios from a further significant rise.
However, drastic fiscal policy adjustment may be not feasible in the short term
and hence public debt is likely to grow further.
In our baseline scenario the DM public-debt-to-GDP ratio is
predicted to soar to 133% in 2020, from just over 100% in 2010.