The Risk of Involving Household Debt Amid the COVID-19 Pandemic

The crisis in the midst of the COVID-19 pandemic has made households more vulnerable to the risk of getting into debt. Massive layoffs (PHK) and sluggish business performance make households lose/experience a significant decrease in income. In addition, the expansion of access to finance that has not been accompanied by an adequate level of financial literacy has led to rampant illegal financial practices and ensnared households into debt maelstrom due to their inability to assess their capacity to pay.

The growth of household debt is considered to be able to encourage consumption growth and increase GDP in the short term, but will suppress consumption in the medium term and increase risks to economic stability (IMF, 2019). The accumulation of household debt will later have an impact on the post-COVID-19 economic recovery process which is more difficult (Tiftik & Guardia, 2020).

The issue of household debt entanglement can be a ticking time bomb that can exacerbate the impact of the crisis. In order to anticipate this, consider the recommendations and highlights outlined in the following Policy Brief.

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