COVID-19 Debt Deluge: Project Syndicate

Crises immediately expose any weaknesses in public infrastructure, and COVID-19 will reveal needs in public health and economic systems. Societies realize that privatization and cost-cutting for health care for vulnerable populations expose all citizens to infection, explains Jayati Ghosh. Analysts anticipate a recession with supply chain disruptions and entire regions locked down. “A world economy already suffering from insufficient demand – owing to rising wealth and income inequality – is now vulnerable to a massive supply-side shock,” Ghosh writes. She warns of a potential debt crisis that could prevent full economic recovery. Loose monetary policies with low interest rates encouraged borrowing and hiked asset prices. “Asian financial markets were vulnerable even before the current shock, owing to falling margins, higher risks, and an excessive dependence on banks and shadow banking (a problem that has already been exposed in India),” Ghosh explains. “ Worse, a significant share of stressed debt in the region is held by energy, industrial, and utility companies, all of which are directly affected by recent output and oil-price declines.” She warns that one country cannot solve the problems on their own, and she urges global leadership that coordinates targeted, forward-thinking policies, concluding: “It is time to start thinking about debt resolution and restructuring.” – YaleGlobal