Paying it back

The rich world has been deleveraging. This would usually be bad news, however, some countries have managed to make it look easy

When lawmakers shut down the global economy during the covid19 pandemic, they turned to the credit card to keep the lights on. Households and companies did the same. Across the rich world, debt rose while gross domestic product (GDP) fell. As a result, leverage ratios, which measure how much debt countries have compared to how much they produce, leapt. But then central bankers started to raise rates at breakneck speed. It became more expensive and difficult to service debts. Consequently, the rich world has deleveraged—they've reduced their debt burdens. On its own, this is not good. But the reality of the situation is actually much more nuanced.

According to the Bank for International Settlements (BIS), debt-to-GDP ratios across rich economies have fallen for two and a half years. Total rich country debt, which includes both public and private debts, peaked in late 2020 at 319% of GDP. But since then, it has steadily declined to 257%. Governments have been the most significant contrib…