A Debt Crisis Would Be Damaging after COVID-19, Here’s How to Avoid It

Crippling debt service payments take away scarce resources from investment in health, education, social assistance, and infrastructure. Photo credit: ADB.

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New ADB data underlines the importance of managing public debt effectively as the region emerges from the pandemic amid global uncertainty.


External service payments on public debt by the world’s poorest countries surged by 35% from 2021 to over $62 billion in 2022, according to the World Bank’s International Debt Report 2022. At the end of 2021, the world’s poorest countries paid $46.2 billion—equivalent to 10.3% of their exports of goods and services—to service their debts. These crippling debt service payments take away scarce resources from investment in health, education, social assistance, and infrastructure.

Yes, the coronavirus (COVID-19) pandemic led to the largest single year increase in global debt since World War II in 2020. It would be wrong though, to attribute the current situation solely to the pandemic: a massive debt build-up had been underway in many low- and middle-income countries for at least a decade before.

High inflation, rising interest rates, and slowing growth, compounded by the Russian invasion of Ukraine, have set the stage for challenging times ahead.

New Data

The national debt service ratio is the percentage of debt services (principal and interest payments) to the exports of goods and services. A country's international finances are healthier when this ratio is low. New data from the Asian Development Bank’s (ADB) Basic Statistics 2023 show that most developing countries in Asia and the Pacific emerged from the pandemic with manageably low debt service ratios.

A few economies, the data show, have ratios considerably higher, notably 29.5% in Pakistan and 27.8% in Sri Lanka . Both these countries have had historically high national debt service ratios that predate the pandemic. Sri Lanka’s recent fiscal crisis is reflected in a near doubling of its debt service ratio since 2016 when it stood at 14.6%.

Figure 1: Debt Service as a Proportion of Exports of Goods and Services, 2020 and 2021

Lao PDR = Lao People's Democratic Republic; PRC = People's Republic of China.
Note: The figure shows only select Asian Development Bank member economies with data available for 2020 and 2021.
Source: Basic Statistics 2023 using data from the World Bank's World Development Indicators (accessed 9 January 2023).

For other countries in Asia and the Pacific, the data suggest a mixed picture. In Armenia, Kyrgyz Republic, and Samoa, debt servicing costs as a proportion of exports were all considerably lower in 2021 than the previous year. This can be explained, perhaps, by debt servicing being a lower priority than COVID-19 relief and recovery expenditure for many countries.

The bigger picture is that the region is bouncing back; ADB’s Asian Development Outlook 2023 estimates growth in developing Asia at 4.8% this year and in 2024. This will largely be driven by recovery in the People's Republic of China (PRC) and healthy domestic demand in India. The report warns, however, that policy makers should stay vigilant in the post-pandemic environment of increasing debt, higher inflation, and rising interest rates.

Boosting Debt Sustainability

According to ADB research into debt sustainability, regional members added $1.6 trillion to their collective fiscal deficit in 2020 and considerably more in 2021. Last year the average public debt in these countries was almost 9 percentage points of GDP higher. Bhutan, Fiji, Lao People’s Democratic Republic, Maldives, Mongolia, Pakistan, Sri Lanka, and others will be above the International Monetary Fund’s (IMF) ”high scrutiny level” for public debt. This means they have debts worth 70% of GDP or more.

To ensure public debt sustainability, low- and middle-income economies in Asia and the Pacific should consider policy options related to enhancing fiscal resources to finance fiscal deficits. These could include strengthening the capacity of tax administration and expanding the tax base in order to increase revenue. Making public spending more efficient by reducing graft, corruption, and waste can also contribute to public debt sustainability. Improved budget documentation and allocation, along with better auditing can also help reduce wastage in public spending.

In a recent issues paper on debt sustainability in the Pacific, UNESCAP highlights other policies that have a good track record, including enhanced public debt management. Measures to achieve this include clear objectives and transparent legal frameworks that enable borrowing the issuance of state guarantees. Quality fiscal-monetary coordination is also important here, along with separate and accountable public debt management offices to strengthen credibility.

Debt and Development

Clearly, a debt crisis in Asia and the Pacific would be a further body blow to development. The COVID-19 pandemic has significantly set back progress toward the United Nations Sustainable Development Goals (SDGs). The UNDP estimates that under global baseline and high damage scenarios in 2030, an additional 47 million and 120 million people, respectively, will still live in poverty as a result of the adverse socioeconomic impact of COVID-19.

So, compound that with a debt crisis and the results could be very damaging for a region struggling with the impact of climate change, high interest rates, and spiralling food and energy costs. The UN’s Department of Economic and Social Affairs (DESA) has called for a full standstill on debt servicing (bilateral, multilateral, and commercial) for all developing countries that request it. DESA also argues that developing countries without high debt burdens should retain access to the credit needed to finance ongoing COVID-19 responses.

In addition, DESA recommends additional debt relief for highly indebted developing countries to avoid defaults and create space for SDG-related investment. For this to have impact, there would also need to be progress in the international financial architecture, through fairer and more effective mechanisms for debt crisis resolution, as well as more responsible borrowing and lending.


Asian development Bank (ADB). 2023. Asian Development Outlook 2023. Manila.

ADB. Basic Statistics Series.

United Nations. SDG Indicators Database.

UNDP. COVID-19 and the SDGs.

World Bank. International Debt Report 2022.

Sean Crowley
Freelance Writer

Sean Crowley is a freelance writer. He worked for Asian Development Bank’s Department of Communications in media relations, multimedia, and web for many years. Before joining ADB, he worked in communications for the UN and UNU-WIDER and as a journalist for the BBC and the South African Broadcasting Corporation. He has a master’s degree in Communications from the University of Tampere in Finland and a first degree from the University of Warwick in the UK.

Stefan Schipper
Senior Statistician, Economic Research and Development Impact Department, Asian Development Bank

Stefan Schipper’s work includes building statistical capacity in ADB’s developing member economies and using new digital technologies to improve databases. He also creates knowledge products, including statistical flagship publications. Prior to joining ADB, he was a statistical officer at the EU’s Eurostat in Luxembourg. He was a senior economist and statistician at the German Central Bank (Deutsche Bundesbank). He holds a doctorate and a master’s degree in Business Administration from the European University Viadrina, Germany.

Karen Firshan
Consultant, Asian Development Bank

Karen Firshan is a consultant at the ADB’s Economic Research and Regional Cooperation Department. Prior to joining ADB, she worked as statistician involved in production of official economic statistics at the Philippine Statistics Authority. She holds a degree in Statistics from the Visayas State University and a master’s degree in Economics from the Tokyo International University.

Asian Development Bank (ADB)

The Asian Development Bank is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

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