1. 1 Sovereign Credit Risk: Changing Fundamentals Fixed Income Forum March 25, 2010 Manmohan S. Kumar Assistant Director Fiscal Affairs Department International Monetary Fund

2. 2 Debt: Diverging Paths 0 20 40 60 80 100 120 0 20 40 60 80 100 120 20002002200420062008201020122014 General government debt (In percent of GDP) Advanced economies Emerging economies

3. 3 Adjustment Needs Required Adjustment Between 2010 and 2020 to Achieve Debt Target in 2030 1/ Debt target is 60% of GDP except for Japan for which it is 80%. 2/ Debt target is 40% of GDP. -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 India South Africa China Saudi Arabia Russia Argentina Mexico Indonesia Turkey Brazil Average Emerging Markets 2/ -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 JapanUnited States United Kingdom France Australia ItalyGermanyCanadaKoreaAverage Advanced Countries 1/ Percent of GDP

4. 4 Financing Needs -10 0 20 30 40 50 60 70 Government Financing Needs, 2010 Percent of GDP

5. 5 Interest Rates and Fiscal Balances Sample of 31 (advanced and emerging market ) countries over 1980–2008.; annual data Expected impact of higher debt on interest rates in advanced economies + 36 percent of GDP + 180 basis points 0 20 40 60 80 100 120 140 160 180 200 Increase in debtIncrease in interest rate

6. 6 Debt and Growth -10 0 10 20 050100150200 Initial Gross Debt, % of GDP Per capita GDP Growth, % per annum Sample of 51 countries; 1970 – 2007; initial debt and subsequent five-yearly per capita growth rates Expected impact on potential growth in advanced economies from higher debt + 36 percent of GDP --0.5 percent growth -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 00 5 10 15 20 25 30 35 40 Increase in debtImpact on average growth