The writer is senior vice-president and economist at Pimco
As the world emerged from the pandemic, many feared that higher interest rates would cripple the private sector. These concerns, it turns out, were largely misplaced. Tight monetary conditions have not triggered broader financial instability. Systemic risks to global banking and non-bank financial markets appear contained. And households have borrowed less.
Instead, the public sector has borne the brunt of the post-pandemic financial strain. The stock of government debt is now close to record highs. Borrowing remains elevated and interest rates have increased, compounding the cost of servicing deficits.
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