Public Debt in the Americas: Risk Premium Triples with Expanding Fiscal Deficit

The high public debt in the Americas has been analyzed to respond nearly three times more significantly in terms of national risk premium when fiscal deficits increase, compared to regions with lower debt. According to a report by the Bank for International Settlements (BIS), public debt in the Americas has reached its highest level in decades, with the debt-to-GDP ratio rising in 27 countries over the past ten years. Among these, about 40% saw an increase of more than 20 percentage points in their debt ratios, while approximately one-third experienced an increase of 10 to 20 percentage points. The interest costs of public debt have also shown an upward trend, with the BIS noting that there have often been instances where interest costs exceeded the growth rate of fiscal revenues. The analysis found that when fiscal deficits increase by 1% of GDP, the EMBI spread of economies with high public debt reacts nearly three times more than that of economies with low debt. The rise in risk premium is also linked to inflation expectations, with the BIS explaining that when national risk premiums rise, short-term inflation expectations may increase through currency depreciation and rising financial costs. The report emphasizes the need for a credible fiscal consolidation strategy and the protection of central bank independence for macroeconomic stability.

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