The COVID-19 pandemic intensified household, SME and corporate over-indebtedness in many countries around the world and influenced the functioning of the private debt resolution system. Countries will need to adopt specific solutions to face the economic shocks brought by the pandemic and refine their legal mechanisms to solve debt overhang and prevent long-run economic impacts.
The merger of high corporate and household debt and the unexpected shock of COVID-19 generates an unprecedented economic challenge. According to the IMF Global Debt Database, overall global debt in 2018 stood at 226% of GDP, of which corporate and household debt comprised 3/4.
Given the levels of pre-crisis debt, the pandemic is widely expected to stimulate extensive debt distress in the corporate sector—particularly in SMEs—as well as in the household sector in many countries, which in turn could affect the financial sector through a rise in NPLs.
Private debt resolution does not operate in a vacuum: in the context of generalized debt distress, debt resolution strategies will have to be coordinated with fiscal and financial policies.
This topic was modified 6 months, 2 weeks ago by Robert Crest.
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