Private sector deleveraging continued, but was counter balanced by rising public sector deficits and debt.

Public sector debt will surpass 1.7 trillion, approaching 80 of GDP.

As recovery continues, this public sector debt will increasingly crowd out private sector, local government and developing country borrowing.

Moreover, private and public sector debt levels tend to be much lower in the emerging economies.

Sovereign debt problems are another strong possibility, given the massive re leveraging of the public sector.

First, total public sector debt (including state and local debt) is already nearing the 119 of GDP peak reached after World War II.

Fourth, the re leveraging of the public sector through large fiscal deficits and debt accumulation risks crowding out a recovery in private sector spending.

The table below presents the evolution of total external debt of the public sector, with a breakdown of creditors.

Cleaning up high private sector debt and lowering public debt ratios by growth alone is particularly hard if a balance sheet crisis leads to an anemic recovery.

But that simply shifts leverage to the public sector, with any reduction in the ratio of private debt to GDP more than matched by an increase in the public debt ratio witness the Irish and Spanish governments high and rising debt burdens.

The most likely explanation for this public investment shortfall is fiscal constraints. And, indeed, debt and unfunded non debt liabilities increasingly weigh down public sector balance sheets and pension funds, eroding the foundations of resilient, sustainable growth.

Low or negative population growth also implies lower potential economic growth and therefore worse debt to GDP dynamics and increasingly grave doubts about the sustainability of public sector debt.

Public sector

External public debt

Central banks that buy sovereign debt issued by fiscal authorities offset market imposed discipline on borrowing costs, effectively subsidizing public sector profligacy.

Public sector procurement

The IMF also pointed out remaining challenges, including the need for further reductions in public debt, increased financial sector regulation, and market diversification.

This, too, complicates the public debt dynamics and impedes the restoration of public debt sustainability.

Indeed, total public and private sector debt in China is now around 200 of GDP, up by more than one third in five years.

Both arrangements will eventually become untenable, because they will generate either an intolerable rate of inflation or an unsustainable burden of public sector debt.

Public policy and public sector investment matter, too.

Policymakers can manage these perceptions by improving public sector governance, ensuring sound macroeconomic management, promoting a transparent and supportive legal framework for private sector activity, building debt management capacity, and protecting investors from expropriation.

Servicing of external public debt

a Excludes official public debt.

Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

Emphasizing the important role that private sector creditors play in debt relief and debt sustainability,

Women in the public sector

The government is running budget deficits of 10 of GDP, despite having cut public sector wages, and now plans further cuts to service failed banks debt.

But the fundamental reason was the failure to understand that high debt burdens, relentlessly rising for several decades in the private sector even more than in the public sector were a major threat to economic stability.

Its public debt was almost eliminated.

Private sector capital flows now dwarf traditional public sector aid flows.

This eventually led to a re leveraging of the public sector as fiscal stimulus and socialization of private losses bail out programs caused a dangerous rise in budget deficits and the stock of public debt.

The adjustment will be even more painful in Europe, because a sovereign debt crisis has a depressing effect on everyone consumers, investors, and the public sector alike.

If public sector investment were to be increased with no rise in taxation, the budget cuts required elsewhere to avoid unsustainable debt growth would bein implausibly large.

In 2011, France s ratio of new debt to GDP was three times higher than Germany s, with the public sector accounting for more than 56 of national income.

12 This is one of the conclusions of the 2005 World Public Sector Report. See United Nations, World Public Sector Report, 2005 Unlocking the Human Potential for Public Sector Performance (United Nations publication, forthcoming).

maintain our efforts to expand the scope of economic surveillance to include government deficits and public as well as private sector debt, if necessary by imposing political penalties

Back in China, the dollar peg has led to large and growing foreign exchange reserves, which are fueling domestic inflationary pressures and causing public sector debt to balloon.

A similar pattern holds for public debt.

The current favorite bogeyman is public debt.

C. Public debt in the ESCWA region

Public debt in the more diversified economies

But the debate about austerity and the cost of high public debt levels misses a key point Public debt owed to foreigners is different from debt owed to residents.

Public sector employees had even more advantages.

The public sector remains the dominant employer.