Rethinking public debt as positive investment in sustainable development

THE unprecedented fiscal firepower used to protect the vulnerable from the harsh socio-economic impact of the Covid-19 pandemic and the resulting economic contraction have pushed the average government debt level in the Asia-Pacific region to its highest since 2008.

Public debt distress is expected to worsen amid the global economic slowdown, record-high inflation and rising interest rates, and uncertainty brought on by the war in Ukraine. And surging debt service payments are expected to put public debt sustainability of several developing Asia-Pacific economies at risk. Most concerning, debt distress risk is highest for countries with the highest development finance needs, including small island developing states.

Powerful development tool in need of a major rethink

Yet, a higher debt level is not necessarily a bad thing, according to this year’s edition of the Economic and Social Survey of Asia and the Pacific. Current policy debates on public debt sustainability do not take into account the long-term positive socio-economic and environmental impact of public investments in laying the foundations of inclusive, resilient and sustainable prosperity.