The corporate sector in many countries had already operated with high levels of debt, which the pandemic will exacerbate by adding further debt and reducing cash flows, according to Douglas J. Elliott, Partner, Financial Services at Oliver Wyman. Oliver Wyman is an affiliate of Guy Carpenter. Similarly, virtually all governments are adding substantially to their debt levels while their revenues simultaneously decline. Some countries will find themselves over-burdened. Individuals and families will face similar difficulties in many cases.
It is unfortunate, but largely necessary, that a major element of the policy response to the pandemic has been to encourage more borrowing, often with government subsidies and guarantees. However, we should pivot from this policy as quickly as possible to one that substitutes equity or equity-like instruments for some of this debt.