(Bloomberg) -- Developing nations are facing more difficult choices than advanced economies in dealing with debt burdens that exploded during the Covid-19 pandemic, according to a new paper co-authored by Carmen Reinhart and Kenneth Rogoff. 

Total debt in developing and emerging economies reached 206% of output last year, the highest level since at least 1970. While that’s lower than the 300% in advanced nations, governments in poorer countries may still have a less palatable menu of options when it comes to chipping away at these numbers. 

Alarm over the massive debt incurred as governments stepped in to deal with the worst recession in living memory has so far been kept at bay by low interest rates, which depress funding costs for companies and governments. But that logic doesn’t easily transfer to emerging markets, where the interest burden on public debt has been steadily rising while credit ratings were lowered, according to the working paper produced with Ayhan Kose and Franziska Ohnsorge and published by the National Bureau of Economic Research. 

Among the available options for policy makers to deal with the problem are “orthodox” methods such as cutting deficits, privatizations and raising taxes on the rich. There are also less conventional approaches, including inflation and default. The best way forward will depend on the characteristics and type of debt concerned, the authors said. 

“Unfortunately, none of the options to deal with debt is attractive or easy,” they said. “Inflation, financial repression, and debt restructuring can impose heavy economic cost; wealth taxes or reforms to generate higher growth can face difficult technical, practical and political obstacles.”

As long as the issue is more pressing in poorer nations than advanced economies, there’s also the danger that inequality between these parts of the world “could become much worse,” according to Reinhart and Rogoff, who a decade ago made waves with their bestseller on the history and risks of governments going into the red.

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