Public-sector debt is spiralling in high-income countries. But this is no cause for panic. Governments are right to borrow freely during the Covid-19 crisis. The debt will also remain affordable — provided they take the trouble to lock in today’s ultra-low interest rates.
Average government financial liabilities are expected to jump to more than 137 per cent of gross domestic product in high-income countries this year, similar to the current level in Italy. That will be just the beginning. But it is the role of governments to spend and borrow in a crisis of such magnitude.
Fortunately, the manageability of debt depends on its cost, not its size. Today, governments of high-income countries can borrow ultra-cheaply, partly because private spending has collapsed, partly because people are looking for safety, and partly because central banks are purchasing so much.