Nº 23 June 2023

ISSN: 2173-8254

Public debt and development distress in Latin America and the Caribbean.

Institution: CEPAL

Unfavourable global macrofinancial conditions have given rise to concerns about public debt sustainability in developing economies, including those of Latin America and the Caribbean. These adverse conditions threaten to worsen the already weak economic growth in the region. Public debt in the region is at levels last seen two decades ago, with a sharp increase in 2020 capping a progressive rise over the past decade. History suggests that countries may undergo development distress when similar macrofinancial and debt conditions coincide.
High debt service may lead countries to face critical trade-offs between debt service and pursuing development objectives. When these trade-offs are no longer viable and market conditions deteriorate, a country may face a debt crisis, with severe and long-lasting disruptions to development, as experienced in the region after the debt crisis of the 1980s. Against the backdrop of the current macrofinancial and debt environment, there is greater urgency to transform the international sovereign debt architecture. The United Nations SDG Stimulus proposal outlines concrete steps in this direction, with solutions for all countries that are aligned with development.