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Debt and Growth: A Balancing Act?

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In front of a packed house in James D. Wolfensohn Atrium, Liliana Rojas-Suarez, senior fellow at the Center for Global Development, led an expert panel in a discussion of the trade-offs between debt and growth facing developing countries.

Across the board, the panelists agreed that when done strategically, borrowing is not a problem per se. Matthew Rycroft of DFID explained that although we should be concerned about overly rapid increases in debt amounts, in many cases, debt is a pre-requisite to growth. The real concern, explained Minister Cardenas of Colombia, is when countries borrow and fail to grow.

Panelists also reached consensus around the ways external shocks, including refugee crises, can cause public debt levels to rise. For Minister Imad Fakhoury of Jordan, having a foundation of fiscal stability and a five-year growth plan focused on employment has been crucial to enabling the country to welcome refugees. For Colombia, which sees thousands of people cross its borders each day, Minister Cardenas added that having strong institutions and avoiding borrowing excessively in foreign currencies have helped the country prepare for shocks.

Mr. Slok of Deutsche Bank concluded that the global markets are testing the limits of “easy financing” and low interest rates. As interest rates rise, global institutions like the World Bank and IMF should continue to work with clients to continue offering a spectrum of ways to help their clients.

Minister Ofori-Atta of Ghana summed up the crux of the discussion when he reflected that while growth is important, countries have a duty to their citizens to manage funds efficiently and proactively manage debt.