Debt Sustainability Challenges due to Covid-19 and the War in Ukraine

The Covid-19 pandemic and the war in Ukraine have exacerbated debt sustainability challenges globally. The primary fiscal balance needed to stabilize debts post-pandemic and war has increased by approximately 1% of GDP. This heightened fiscal pressure is mainly due to higher expected long-term real interest rates which have risen by about 1.5% compared to pre-Covid levels. Growth projections, especially in advanced countries, remain relatively stable, yet long-term growth prospects have decreased in fast-growing emerging markets, adding to the fiscal strain.