Highlights:
- The COVID-19 pandemic and subsequent global geopolitical uncertainties have resulted in a notable upswing in debt levels across both Emerging and Developing Economies (EMDEs) and Advanced Economies (AEs).
- AEs enjoy lower interest rates than emerging economies, leading to more manageable debt serviceability even with high debt levels.
- Even though a policy easing cycle is anticipated to start this year, the rate-cutting cycle is unlikely to be steep. We expect the interest rate burden to increase for AEs going ahead as interest rates are expected to remain above the pre-pandemic levels.
- In the US, net interest payments are projected to rise to ~19% of revenue by 2026 from 9.7% in 2022. In the UK, interest expenses (% of revenue) are already on the upswing, having doubled from 5.4% in 2020 to 10.9% in 2022.
- Soaring debt levels, a slowing economy, the elevated cost of money, and geopolitical risks are some factors that will impact the debt sustainability of AEs.
- While global discussions have focussed on the debt sustainability of EMDEs, it is also equally crucial to acknowledge the growing vulnerabilities present in AEs
