What Does Debt Relief Do for Development?

High levels of household debt are a common problem in developed and developing economies, and evidence from the global financial crisis suggests that high household debt-to-GDP ratios can be an important source of financial instability, prolonged recessions, and reduced income growth in the longer run. In the aftermath of the financial crisis, policymakers have therefore sought to identify policies that can effectively reduce household debt, and direct credit market interventions—such as debt moratoria or debt relief for highly-indebted households—have been proposed as a potential solution. Such programs have, however, remained controversial because there is limited evidence on their ability to resolve debt overhang and stimulate economic activity, and because crit