Trend Government debt keeps expanding as interest rates approach or exceed growth rates

Summary

MGI finds that government debt continues to expand while interest rates in advanced economies stay high and reach or exceed expected growth rates. The path of public debt depends on three variables: the primary deficit excluding interest as a share of GDP, nominal GDP growth, and the yield on long-term government bonds. When growth outpaces interest rates, governments can run primary deficits without raising the debt ratio, which is how the US ratio stayed fairly stable through the 2010s despite persistent deficits. That cushion is shrinking as rates rise, so economies may no longer be able to simply grow their way out of debt. The report concludes that debt sustainability is moving into the spotlight.