Sovereign Debt Outlook: 2022 and beyond

Sovereign Debt Outlook: 2022 and beyond 25 FEBRUARY 2022

Miguel A. Savastano Deputy Director IMF | Monetary and Capital Markets

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Sovereign Debt/GDP—World: 2013-2021

IMF | Monetary and Capital Markets

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Sovereign Debt/GDP—Country groups: 2013-2021

IMF | Monetary and Capital Markets

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Global Macro Outlook—2022-25  End of pandemic  Output growth back to pre-covid trend (AEs; most EMs)  Fiscal deficits (much) lower than in 2020-21  Higher global interest rates/higher inflation  Tighter global financial conditions IMF | Monetary and Capital Markets

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Debt/GDP projections—Five possible paths

Debt to GDP

C A

IMF | Monetary and Capital Markets

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B D

t1

jump

Year

drop

t*

5

t1+n

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Debt/GDP outlook—baseline and shock scenarios WIDE BANDS

Debt to GDP

NARROW BANDS

t Year

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Debt/GDP projections: baseline scenarios

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Debt/GDP Outlook—bands around central projections Width

Shape

(degree of uncertainty)

(balance of risks)

Advanced Ecs

narrow

symmetrical

EMDEs

medium

likely symmetrical

wide

asymmetrical

Low Income Ctries

IMF | Monetary and Capital Markets

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Risk Indicators—Sovereign spreads (Feb 18, 2022) Number of countries

Low

Total

104

47

41

6

10

Europe

38

27

9

1

1

Rest

66

20

32

5

8

IMF | Monetary and Capital Markets

Spread 'bucket" Performing Stressed

Distressed

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In sum • Global economic and market conditions in the next 2-3 years will be markedly different than in the last two.

• Borrowing from advanced economies will remain sizable but debt/GDP ratios will stabilize.

• Risk of “events” in global debt markets will be higher than in recent years, but will remain manageable.

• Large EM will continue to access debt markets despite the higher costs.

• Continued access by smaller EMs and MICs is less certain. Debt events are likely, but no “wave”

• The outlook for LICs will remain challenging. Many events possible, but of small size.

IMF | Monetary and Capital Markets

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THANK YOU

IMF | Monetary and Capital Markets

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