This isn’t my article, but it’s an insightful analysis of the state of sovereign debt – including the seismic shift of high debt ratios from emerging to developed nations.
Many metrics speak to the generalised nature of the disruption to public finances. My favourite comes from Willem Buiter, Citi’s chief economist. More than 40 per cent of global GDP now resides in jurisdictions (overwhelmingly in the advanced economies) running fiscal deficits of 10 per cent of GDP or more. For much of the past 30 years, this fluctuated in the 0-5 per cent range and was dominated by emerging economies.
Second, the shock to public finances is undermining the analytical relevance of conventional classifications. Consider the old notion of a big divide between advanced and emerging economies. A growing number of the former now have significantly poorer economic and financial prospects, and greater vulnerabilities, than a growing number of the latter.
It’s now nations in the developed world that have surging deficits and total debt closing in on 100% of GDP, while emerging markets like Brazil are cleaning up their balance sheets thanks to competitive manufacturing businesses, commodity exports, and hawkish central banks.
While there are a lot of factors el-Erian leaves out, it’s a good overview of the future of sovereign debt.
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