From Ian Talley of the WSJ.

A host of governments around the world don’t have enough income to buffer against growth risks and higher borrowing costs. “You might think that you have sustainable debt dynamics, but that can change dramatically,” said Ayhan Kose, a lead author of the bank’s latest Global Economic Prospects report. Part of the report was published late Wednesday.

Read the whole thing. It is hard to pick out the scariest sentence.

The way I think about institutions that rely heavily on debt is that there are two equilibria. In the good equilibrium, lenders are confident (rightly or wrongly) that the debt will be repaid, interest rates are low, and there is no crisis. In the bad equilibrium, lenders are doubtful (rightly or wrongly) that the debt will be repaid, interest rates are high, and there is a crisis. While you are in the good equilibrium, it looks like borrowing does not cause any problem. When you hit the bad equilibrium, people look back and ask how you could have been so stupid. A few years ago, I explained the challenge with predicting the trigger point for a crisis ahead of time.

The article suggests that emerging markets are more fragile because in those countries private companies often need to be propped up by government, and in a crisis credit dries up for both private and public borrowers. The implicit assumption is that developed countries are immune from such double whammies. I am not so sure.