Asia’s Public Debt: Will a Stabilization Period Come?

Abstract

The article discusses the main trends characterizing the development of the situation with internal and external public debt in Asia in the modern period. The leading factor in the growth of domestic debt was the spread of the COVID 19 pandemic, which made the Asian states face the need to sharply increase financial support for the socio-economic sphere for an indefinite period, which leads to a revision of the upper limit of the budget deficit and a narrowing of the country’s fiscal space. There is an increasing danger of an excess of budget expenditures over income caused by the expansion of loans and guarantees to small and medium-sized businesses and support for households due to the growing wave of bankruptcies and financial insolvency. The pressure is most felt on low-income Asian countries with underdeveloped capital markets that are at high risk of a debt crisis. The article notes that after a period of external financial stability, the problem of repayment of external debt caused by the deficit of their balance of payments is again aggravated in the developing countries of Asia. Crisis phenomena in the economy impose restrictions on the volume of resources coming from outside. At the same time, the needs of developing Asian countries for an influx of international funds in connection with the repayment of previously attracted loans and debt restructuring are increasing significantly. A forecast is made that, in general, in 2022–2023, the external public debt of Asian countries will continue to increase, exacerbating the vulnerability of their economies. Some of them will have to change their development model due to increased risks – increased funding needs, foreign investor positions, exchange rate fluctuations and short maturities of liabilities requiring a reprioritization of government spending and a more efficient budget process. It is concluded that while looking for a solution to the problems of attracting new borrowings and at the same time increased debt servicing, in some cases Asian countries will inevitably face a peak in debt, the need for debt restructuring and new difficult negotiations with creditor countries.