The Risk of Over-indebtedness Amid COVID-19 Pandemic

Crisis amid COVID-19 pandemic makes households more vulnerable towards over-indebtedness. Massive layoffs and economic slowdown has forced many households to lose / face a significant decline in their income. Furthermore, broader access to financial services that has not been followed by adequate financial literacy has encouraged illegal financial practice and has trapped many households into a cycle of debt due to inability to assess their own capacity to repay.

In the short term, household debt is going to boost consumption and GDP growth. However, household debt is going to affect the economic stability over the long-run (MF, 2019). The accumulated household debt will later have an impact on the more difficult post-pandemic COVID-19 economic recovery process.

over-indebtedness could be a ticking time bomb that is going to exacerbate the recessionary impact of the pandemic. To anticipate this, let’s pay attention to the recommendations and highlights set out in the following Policy Brief.

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