Day: December 16, 2021

Global debt as a share of GDP rose to an all-time high in 2020, according to the latest update of the IMF’s Global Debt Database. Here’s a descriptive figure from a blog post by  Vitor Gaspar, Paulo Medas, and Roberto Perrelli at the IMF showing the overall pattern.

As you can see, global debt jumps from 227% of global GDP in 2019 to 256% in 2020. The authors write:

Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP. Private debt from non-financial corporations and households also reached new highs. … Advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020.

You can also also see in the figure the comparable jump in debt of 20 percentage points during the Great Recession from 2007-9. The rise in debt as a share of GDP in 2020 has already exceeded the rise from 2007-9, and one suspects the number will rise still higher in 2021.

The gradual rise in global debt over the decades should probably be viewed as a good thing. There is a natural pattern that debt tends to rise as the financial sector of an economy becomes more developed. After all, low-income countries with few banks and tiny bond markets tend not to have much borrowing and lending.

But two booms in global debt in the last 14 years–once in the Great Recession and now in the pandemic recession–also bring some constraints and vulnerabilities. If interest rates rise around the world, debtors who borrowed using adjustable rate loans, or who have been planning to roll over their old fixed rate loans with new borrowing, will find that their costs are much higher. Debt is often not that flexible, and so an inability to make payments on past loans, or to afford the borrowing for new roll-over loans, can lead to threatened defaults and forced reorganizations. The authors write: “But the debt surge amplifies vulnerabilities, especially as financing conditions tighten. High debt levels constrain, in most cases, the ability of governments to support the recovery and the capacity of the private sector to invest in the medium term.” Also, high debt levels mean that inflation becomes more attractive to governments and other borrowers, because it allows them to repay past borrowing in cheaper inflated dollars.

During a global financial crisis or a pandemic recession, it can make sense for governments and others to borrow heavily for a year or two. But such rises in debt should be viewed as a short-term palliative, with costs and risks and tradeoffs.

As I have written before, the $18 billion spent on the Operation Warp Speed program to accelerate the development of COVID vaccines may well have the highest benefit-to-cost ratio of any government program that has ever existed. Moreover, the benefits will continue to grow as more people get vaccinated here and around the world, and as future vaccines are developed based on the accumulated knowledge. Over at the Commonwealth Fund, Eric C. Schneider, Arnav Shah, Pratha Sah, Seyed M. Moghadas, Thomas Vilches, and Alison Galvani have updated their model to answer the question: “The U.S. COVID-19 Vaccination Program at One Year: How Many Deaths and Hospitalizations Were Averted?” (December 14, 2021). They write:

The U.S. vaccination program campaign has profoundly altered the trajectory of the COVID-19 pandemic, preventing nearly 1.1 million deaths. Even with only about 60 percent of Americans vaccinated to date, the nation has dodged a massive wave of COVID-19 deaths that would have started as the Delta variant took hold in August 2021. Because of Delta’s rapid and nationwide spread, deaths due to COVID-19 would have far exceeded all previous peaks. Our estimates suggest that in 2021 alone, the vaccination program prevented a potentially catastrophic flood of patients requiring hospitalization. It is difficult to imagine how hospitals would have coped had they been faced with 10 million people sick enough to require admission. The U.S. has 919,000 licensed hospital beds and typically accommodates about 36 million hospitalizations each year.

Their model predicts the death rates and hospitalization rates with and without vaccinations:

Of course, all models like this are open to question. Maybe the delta variant of COVID would not have been quite as bad for an unvaccinated population at their model predicts. If vaccines had not been available, probably alternative steps would have been taken to limit the spread of COVID in 2021–steps that would of course have had benefit and costs and tradeoffs of their own. But my point here is not to quibble over the numbers: after all, reducing deaths and hospitalizations by half of these projects, or one-tenth of these projections, would still be an extraordinary success. Instead, I want to emphasize that the COVID pandemic, awful as it has been, could have been much worse. And I’m not sure we have internalized the lessons we need to learn for the next pandemic, just in case “invent a vaccine really fast” doesn’t work so well next time.