Historically, the most effective manner to reduce excess debts held by the government and the public at large has been to inflate it away. This tool has been successfully implemented both by emerging markets and developing countries, most significantly by the U.S. during the 1950s. We see it at work once again today in a big way, with some countries making remarkable progress at reducing debt levels.
Financial repression consists of imposing negative real returns on the holders of fixed income securities by allowing inflation to be higher than interest rates. This can be done either through Central Bank monetary policy or by regulators forcing financial agents to hold unattractive securities. The winners in this game are the debtors at the expense of the creditors, which can lead to a significant redistribution of wealth. For example, the archetypical old lady living off interest payments suffers badly, while the millennial with a fixed mortgage gains handsomely. Governments with high debt levels are big winners.
The chart below shows the one-year evolution of total debt to GDP (left side) and government debt to GDP (right side) for a broad group of emerging market and developed economies, based on Bank For International Settlements (BIS) data through December 2022. These numbers show the remarkable different paths countries have taken over this period. Most remarkably, highly indebted countries in Europe (UK, Spain, Italy) have achieved large reductions in total debt to GDP ratios through financial repression. For example, negative interest rates in the UK have brought the total debt to GDP ratio down by 52.4 percentage points, from 297.5% to 245.1%, and government debt to GDP, from 134.2% to 93.7%. British monetary authorities must be delighted at the result of their policies, which they have continued to pursue through the first semester of 2023. China, on the other hand, with massive debt accumulating at a furious pace, saw its total debt to GDP ratio rise from 285.1% to 297.2% and government debt to GDP rise from 71.7% to 77.7%, mainly because overcapacity and malinvestment have persistent deflationary effects. 
In emerging markets, most countries have benefited from financial repression. In addition to China, Korea, South Africa and Argentina can be singled out as countries with rising debt ratios over the past year.
Unfortunately, this positive effect from financial repression may not persist for all. Continued winners in 2023 include the UK, the U.S. and the Euro area, all of which continue with negative interest rates while pretending to execute tight monetary policies. However, countries like Brazil now have very high real interest rates and are seeing renewed increases in debt ratios.
Brazil’s debt ratios increased in the 4th quarter of 2022 and will surge through 2023 unless the Central Bank changes its current ultra-orthodox posture, repeating the policy mistake of the 2015-2019 period when high real rates led to a ramp up of debt levels, as shown below.
Another interesting article.