The global financial crisis showed the distinction between private and public debt is far less important than previously thought: private debt can quickly become public debt and high public debt can quickly hinder private borrowing. Recent experience in Europe shows that refinancing problems, even for the sovereign, can arise abruptly. More importantly, they can arise either from large public debt (Greece), large private debt (Ireland), or a combination of the two (Portugal). In February 2011, the G20 announced that they would monitor country imbalances on the following indicators: public debt and fiscal deficit; private debt and private savings rate; and the external imbalance. In this post, we take stock of the main changes in public and private debt levels after the crisis and explore their implications for financial stability.


We examine changes in the total (public and private) debt of a number of countries during 2005-10 based on quarterly flow of funds level data from Haver Analytics. Total debt is calculated by summing up the debt of nonfinancial corporations, financial institutions, general government and households including non-profit institutions serving households (NPISHs). Debt is calculated as the sum of (i) securities other than shares (excluding financial derivatives).; (ii) loans, and (iii) accounts payable of each sector. The underlying data for these variables come from national flow of funds. Finally, we divide the debt stocks by GDP to get a measure of the total debt burden of the economy (given that GDP reflects the capacity of the whole economy to generate income and repay the debt).


Outstanding debt levels in advanced countries—public and private—are generally higher than they were before Lehman, despite deleveraging in some sectors. This suggests higher refinancing risk for both public and private borrowers in the years ahead.

In particular:

  • The public sector has been the primary driver of debt accumulation in advanced countries after Lehman’s demise due to continued fiscal deficits and sluggish growth, sometimes more than offsetting the positive developments in other sectors. Gross general government debt is now higher across the board for all countries, but especially for Japan and the US. This is also the case on a net debt basis.
  • Outstanding debt of the financial sector is also higher in most cases, except for Germany, Ireland and the United States. However, due to ongoing efforts to boost bank capital, the net asset position of the financial sector has improved in most cases.
  • The household sector has been deleveraging in most advanced countries, except in GIP, as consumers shy away from contracting new debt and increase savings. At the same time, due to increased valuation of household assets, the asset position of households is now in much better shape, except for Greece. In the US, a significant part of the household deleveraging can be attributed to write-offs on consumer loans and mortgages.
  • Outstanding debt of the non-financial corporate sector is somewhat higher than before, especially in Ireland and Portugal. On a net basis, the financial position of the non-financial corporate sector has improved in most cases, except for Ireland and Portugal.

More broadly:

  • Total Debt is still growing. In most advanced countries, the economy as a whole, putting all sectors together, is still accumulating debt.
  • Risk transfer. Although private debt has been declining gradually since Lehman, this has been more than offset by the increase in public debt.
  • Initial conditions matter. We can show (see below) that countries with higher private debt before the crisis experienced larger increases in public debt in the post-crisis period.

  • Refinancing risk. Given the larger total debt stock, refinancing risks (for both private and public debt issuers) are now much higher and likely to remain elevated for some time.
  • Debt workouts. In highly indebted countries where domestic savings are low (as reflected in current account deficits) and growth prospects are weak, debt workouts may become necessary.
  • Sovereign risk. A lesson from the crisis seems to be that authorities need to monitor the private stock of debt, in addition to the public sector debt.

With the public sector becoming the main debt accumulation engine in the post-crisis period, there is a need by policymakers (including public debt managers) to expand the monitoring scope to include private as well as public debt. To the extent that new government debt could end up crowding out corporate debt at specific maturities and vice versa, policy makers and private-sector risk managers need to pay more attention to refinancing risk in the years ahead. Gross debt and net debt levels are worth monitoring in parallel, as the former can give a picture of potential liquidity problems, while the latter can give show solvency problems.


Serkan Arslanalp from the IMF contributed to this post.

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