Government debt

Taking debt can allow governments to conduct fiscal policy more effectively, avoid tax increases, and making investments with long-term returns.[8][9] Public debt has been linked to the rise of democracy, private financial markets, and modern economic growth.[7] Low-income, highly indebted states tend to attain loans from multilateral development banks and other governments because they are considered too risky for private investors.[2]: 208, s7.238 A country's general government debt-to-GDP ratio is an indicator of its debt burden since GDP measures the value of goods and services produced by an economy during a period (usually a year).For example, deficit financing can be used to maintain government services during a recession when tax revenues fall and expenses rise for say unemployment benefits.[8][9] For example, in the 17th and 18th centuries England established a parliament that included creditors, as part of a larger coalition, whose authorization had to be secured for the country to borrow or raise taxes.[8]: 10–16 But the founding of the Bank of England in 1694 revolutionised public finance and put an end to defaults such as the Great Stop of the Exchequer of 1672, when Charles II had suspended payments on his bills.In 1815, at the end of the Napoleonic Wars, British government debt reached a peak of more than 200% of GDP,[17] nearly 887 million pounds sterling.[18] The debt was paid off over 90 years by running primary budget surpluses (that is, revenues were greater than spending after payment of interest).[6] The COVID-19 pandemic caused public debt to soar in 2020, particularly in advanced economies that put in place sweeping fiscal measures.In an extreme case, in the 1920s Weimar Germany suffered from hyperinflation when the government used money creation to pay off the national debt following World War I.[2]: 76 An example of an explicit contingent liability is a public sector loan guarantee, where the government is required to make payments only if the debtor defaults.[2]: 210, s.7.252 Examples of implicit contingent liabilities include ensuring the payment of future social security pension benefits, covering the obligations of subnational governments in the event of a default, and spending for natural disaster relief.[44] In 2010 the European Commission required EU Member Countries to publish their debt information in standardized methodology, explicitly including debts that were previously hidden in a number of ways to satisfy minimum requirements on local (national) and European (Stability and Growth Pact) level.