The Bank for International Settlements published an analysis finding that elevated public debt and interest costs increase the sensitivity of sovereign risk premia to fiscal deficits in emerging market and developing economies in the Americas. Risk premia rise almost three times as much following fiscal expansion in economies with high debt as in those with low debt, while the effects are larger and more persistent when interest burdens are high. These relationships hold under both floating and non-floating exchange rate regimes. Public debt increased over the past decade in 27 of 33 economies examined, with about 40% recording rises of more than 20 percentage points of gross domestic product. The analysis also finds that high debt makes short-term inflation expectations more sensitive to changes in risk premia, although it identifies no lasting significant difference based on interest burdens. The bulletin calls for credible fiscal consolidation that protects productive investment and essential services, supported by effective fiscal frameworks, and emphasizes central bank independence and a continued focus on price stability.
2026-08-19Bank for International Settlements
Bank for International Settlements finds high debt amplifies fiscal deficit effects on risk premia and inflation expectations in the Americas
The Bank for International Settlements found that high public debt and interest costs amplify the effect of fiscal deficits on sovereign risk premia in emerging market and developing economies in the Americas. High debt also strengthens the transmission of risk-premium changes to short-term inflation expectations, regardless of the exchange rate regime. The analysis emphasizes credible fiscal consolidation and central bank independence.