Sovereign Debt Vulnerabilities in Asia and the Pacific

Abstract

This paper provides debt ratio projections and heat maps that indicate widening pockets of vulnerability in Asia and the Pacific. It discusses the challenges for policy makers working to restore public finances after a series of crises. While the outlook does not yet suggest a widespread debt meltdown looming in the region, the global environment presents major challenges. Obstacles to economic growth and rising borrowing costs risk jeopardizing efforts to restore public finances and to ensure their sustainability. Economies in or close to distress face complications from a complex creditors landscape.

Developing Asia's fiscal landscape and challenges

“…There is, however, a significant challenge for some economies, particularly those with significant outstanding external debts such as (Ferrarini et al 2023;ADB 2024) as they face vulnerability to prolonged increases in global interest rates and heightened risk aversion. These countries exhibit substantial foreign debt and persistent current account deficits, 1 Authors' calculation using IMF World Economic Outlook October 2021 online database (accessed 31 January 2021).…”