Given the limitations of each of these options, governments would need to take a comprehensive approach to address the rising debt burden.
Financial repression policies will probably be the path of least resistance. However, they are not without costs. Central bank involvement beyond that justified by the economic backdrop would call into question their independence. Hence, while these policies are likely to be used to buy time for vulnerable countries, they cannot be relied upon forever.
Achieving fiscal consolidation has limits, as well. Following the austerity measures after the global financial crisis, there is little public appetite for further cuts in services. There is, in fact, demand for more spending, such as on healthcare, education and infrastructure. Policymakers are better served by enacting policies that boost growth via encouraging more people to work, as well as via greater private and public investments. Increased taxation is likely to be part of the solution.
Finally, inflating away debt is easier said than done. Inflation has been quite sticky at low levels and if it does rise sharply, investors would also demand higher interest rates, offsetting the benefit of higher nominal growth. Still, a post-COVID world of modestly higher medium-term inflation, if it occurs, could be welcomed by policymakers.