CNA Explains: Why global public debt is swelling – and why it matters

What is government debt, and why do countries borrow? 

Government debt is money borrowed to finance spending when revenues fall short. It is typically raised by issuing bonds to domestic or foreign investors. 

Debt plays a crucial role in modern economies. Banks take deposits and lend them out as credit, allowing money to circulate and multiply. That credit – and the debt behind it – fuels consumption, investment and economic growth. 

For governments, borrowing allows spending during crises. 

“It’s great for the government to be able to borrow in a financial crisis or a pandemic, to deal with a recession, to pay for infrastructure,” said Kenneth Rogoff, an economics professor at Harvard University. 

Raising debt in such moments is often more efficient than sharply raising taxes. 

In that sense, debt is not inherently harmful.

Why are economists worried now? 

The concern is not just how much debt governments have, but how fast it is growing and how expensive it has become. 

A significant portion of today’s debt was accumulated during years of ultra-low interest rates, most recently during the COVID-19 pandemic, when central banks cut rates to encourage borrowing and support economies hit by lockdowns.