If new borrowing follows the golden rule of fiscal policy —borrowing to make investments that support stronger long-term growth, such as infrastructure —then there is even more scope for debt to grow while remaining sustainable. According to Bank estimates, many countries could grow over the medium term at a rate that exceeds the interest rate on their debt.
Should countries stay on this growth path and governments limit new borrowing, current public debt loads could be more sustainable. It’s important to remember that a stable debt-to-GDP ratio does not guarantee sustainability. A credible macroeconomic framework is critical to maintaining faith in a government’s creditworthiness, achieving growth and avoiding instability. Sound fiscal and monetary policies are at the core of this.