Government borrowing to stay above pre-pandemic average

6 Apr 22

Governments remain set to borrow nearly a third more this year than they did before the Covid-19 as the pandemic, inflation and geopolitical concerns keep the economy on shaky footing, analysts have said.

The repercussions of the ongoing invasion of Ukraine by Russia are pushing costs up and trade down, leaving governments needing to borrow to support their economic recoveries from Covid-19, which is still not over, according to the report from S&P Global Ratings.

This will combine with higher interest rates to pose particular problems for countries that have so far been unable to restart growth after the pandemic, and where interest payments already make up a significant portion of expenditure, the agency said.

“We expect borrowing to stay elevated, owing to high debt-rollover needs, as well as fiscal policy normalisation challenges posed by the pandemic, high inflation and polarised social and political landscapes,” said S&P credit analyst Karen Vartapetov.

The report predicted sovereign government borrowing will reach $10.4trn in 2022 – $4.8trn lower than in 2020 and about $300bn below last year, but $2.6trn more than the 2016-2019 average.

It said the “main driver” of the high debt issuance will be slow fiscal consolidation, with general government deficits predicted to be higher than pre-Covid-19 averages nearly everywhere even into 2023.

S&P said the approximate effect of Covid-19 on public finances in 2020 and 2021 was about $8.4trn combined, and warned new variants risk the need to reintroduce economically harmful lockdown measures or step up fiscal support again.

So far advanced economies still face favourable borrowing costs, according to the report, with all G7 countries apart from the US having a cost of debt in early 2022 below the effective interest rate on their existing debt stock.

By the end of 2022 S&P said it projects total commercial sovereign debt stock to have reached $66.5trn, with the US and Japan accounting for more than half of it and G7 countries accounting for 70%.

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