Global Debt Monitoring System

Global debt has soared to the highest levels since World War II. Driven by the pandemic, Developed and Emerging Markets have attained record high levels of debt, challenging the academic consensus on what was previously considered unsustainable debt stocks. While the debt levels have been tolerable until now owing to near-zero interest rates, risks of higher inflation can usher a change in the ultra-accommodative monetary policy stance, causing debt servicing costs to explode and potentially leading to fiscal distress.

The Goldman Sachs Sovereign and Economic Risk Group tasked the Capstone team with analyzing the risks associated with a set of Developed and Emerging economies’ debt positions. For this, the team built an innovative Debt Monitoring System that integrates the findings of a comprehensive literature review in order to flag existing risks across a selection of macroeconomic and financial indicators. The system is updated automatically with data from the world’s leading economic and financial data providers, offering a real-time risk assessment. Furthermore, the team used the IMF framework to conduct a Debt Sustainability Analysis (DSA) for a key set of countries, which allows a forward looking evaluation of the potential debt trajectory scenarios.The Capstone team contribution consisted in a final presentation and various key deliverables. The deliverables included the Debt Monitoring System, a comprehensive review on the academic literature on sovereign debt and a detailed Debt Sustainability Analysis of eight systemically important economies.