How to Deal with the Sovereign Debt Crisis in the Post-epidemic Era

Hou Wenjie

Journal of Applied Finance & Banking, 2024, vol. 14, issue 3, 1

Abstract: This paper explores how developed and developing economies manage sovereign debt crises in the post-pandemic era, amidst a backdrop of inflation and slow growth. Fiscal and monetary stimuli in advanced countries increased global debt, with tighter monetary policy dampening domestic demand, weakening real economy investment, and diminishing the impact of expansionary fiscal measures. Developing nations face higher interest costs due to rate hikes by major economies, and adopting tight policies could lead to financial bubbles and underfunded real sectors. Inflation spikes exacerbate their debt burden, while diversified economies like Germany are more resilient compared to those heavily dependent on a single industry or foreign capital, as seen in Greece. Post-2023, central banks' shift to monetary easing eases debt burdens in advanced markets, boosts domestic growth, and provides capital inflows for emerging economies, reducing their debt servicing costs and crisis risk. Tackling the sovereign debt crisis requires international macro-policy coordination, with developed economies considering spillover effects on global economic stability. International support, such as debt relief, is vital to enhance resilience and sustainable development in vulnerable economies. All countries must tailor monetary and fiscal strategies to national conditions to navigate economic uncertainty and mitigate sovereign debt risks effectively. Â

Keywords: Sovereign debt crisis; Industrial composition; External dependency; Financial stability; Debt sustainability. (search for similar items in EconPapers)
Date: 2024
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