A more radical approach to debt: do nothing

IMF economists explore radical approach for states with large public debts - if the cure is worse than the disease, why not just live with the debt?

One of the most obvious legacies of the global financial crisis is the sharp increase in public debt. Countries scrambling to avert the collapse of their economies or banking systems built up stocks of debt at a pace previously unseen during peacetime.

Attention has more recently turned to how quickly that debt should be paid down. In the UK, Chancellor George Osborne has made cutting the national debt as a share of GDP a key pledge.

Related: The austerity delusion | Paul Krugman

"While there are some countries where clearly debt needs to be brought down, there are others which are in a more comfortable position to fund themselves at exceptionally low interest rates, and which could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues)," Ostry and Ghosh write in a blogpost to accompany the discussion note.

"This is a case where the cure may be worse than the disease: paying down the debt would require further distorting the economy, with a corresponding toll on investment and growth," says the discussion note, which the Fund points out does not necessarily represent IMF views or IMF policy.

"The mantra that it is always desirable to reduce public debt must not go unquestioned. A comparison of costs and benefits must underpin policy advice. For countries in the green zone, the case for living with the debt is a strong one."