15 years after Lehman collapse: a more complex and volatile world
G20 summit in India, 15 years later. The financial crisis is over, but actions taken to tide over it have left the world with new challenges. At the same time, the world is more fragmented than it was in 2008.
The covid-19 pandemic and the Ukraine war have added to overall uncertainty, creating a more complex and volatile world. Central banks used quantitative easing to stabilize markets after the financial crisis, and again during the pandemic. It resulted in a steep fall in interest rates, which in turn spurred public borrowing, sowing the seeds of a potential debt crisis.
Public debt in developing economies—which need relatively more financing—quadrupled from $50 billion in 2010 to $200 billion in 2022. Unfortunately, this meant that after servicing debt, less resources were available for critical services such as healthcare or education. In some countries, the share of external or foreign currency debt increased, but the ability to service it did not keep pace.
This had serious consequences in 2022, when the strengthening dollar made it harder to repay dollar debt. About 60% of low-income countries were estimated to be in or at risk of debt distress in 2022. The situation has not improved much: Moody’s reported a record seven sovereign defaults in 2022, and two and counting in 2023.
By the time the financial crisis happened, the engines of world growth were already shifting. In 2007, advanced and developing countries became equal contributors to world GDP (on purchasing power parity basis). This shift was only reinforced as emerging economies bounced back stronger from the crisis.
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