Public debt levels in sub-Saharan Africa rose sharply in the wake of the global financial crisis, and a number of countries are now classified by the World Bank and International Monetary Fund as at high risk of debt distress. By contrast with the debt crisis of the 1980s and 1990s, however, concerns were not region wide as recently as early 2020, and the policy environment for growth remains robust for the majority of countries in the region. The external environment nonetheless poses a set of region-wide risks that include the economic effects of the COVID-19 pandemic and are exacerbated by the increase in market-based debt and the retreat of the Paris Club among official creditors. Changes in perceived creditworthiness can now drive distress, and new challenges of creditor coordination will complicate the debt restructuring process. We motivate a research agenda that focuses on development assets at risk as rising debt service obligations crowd out development as well as operational and maintenance budgets. Preserving and enhancing these assets, which include advances in human capital and infrastructure and an improved investment environment, should be a central objective of domestic policy actions, preventative debt restructurings and institutional approaches to debt distress.

The COVID-19 pandemic has caused an unprecedented degree of public and private intervention to avert a social, economic and financial crisis. EU member states, and especially participating member states of the European Banking Union (EBU), introduced a broad set of measures, including public guarantees, moratoria and amendments to the European Commission State Aid framework, to contain the negative effects of the pandemic on the economy. The EU suspended its fiscal rules and the European Central Bank increased its monetary operations. The paper uses an empirical analysis to review the impact of public support on the Single Supervisory Mechanism (SSM) banks and the acutely exposed participating EBU member states because of their significant increase in government debt levels. We argue that the containment of the crisis creates a major uncertainty, namely a possible insolvency lag once the benefits of the public support subside and insolvencies start to materialise. This uncertainty is associated with non-financial corporates, the safety and soundness of the SSM significant banks and sovereign debt sustainability, forming a new ‘doom loop’. We suggest the design of a ‘transition phase’ as a mechanism of accountability to improve the understanding of those uncertainties to ensure financial stability.

One consequence of interest rates remaining 'too low for too long' since the Global Financial Crisis is the buildup in private leverage in emerging economies. These vulnerabilities have been laid bare by the COVID-19 shock. This paper employs the growth at risk framework (Adrian, Boyarchenko, and Giannone, 2019) to examine how different types of private leverage present risks to future GDP growth in Asian economies. We find evidence that private leverage can boost GDP growth in the near term, but can increase the risks of low growth over the medium term. For our sample, we also find that household debt poses a larger drag on future GDP growth than corporate debt. In the second part of the paper, we provide an overview of a strategy for prevention and resolution of over-indebtedness, with a focus on legal tools, and with considerations to account for the consequences of the COVID-19 pandemic. Using a novel cross-country survey, we examine the role of legal techniques to prevent and treat corporate and household over-indebtedness, benchmarking those in ASEAN-5, China, India, Japan and Korea against international best practice. The analysis can inform a country-specific prioritized approach to strengthening legal frameworks.