The amount of debt of the countries of the world is increasing; concerns about developing countries / Article

The amount of debt continues to grow

The amount of global debt, estimated by the Institute of International Finance, is about 349% of the world’s gross domestic product (GDP) and is equivalent to a debt of US$ 37,500 per person in the world. Global debt is much higher than it was before the global financial crisis. However, if we can believe the data of the Institute of International Finance, it has also risen significantly since 2021, when the world GDP debt reached 247%.

At the top of the debtors are Japan and Greece.

As Terry Chan and Aleksandra Dimitrijevics, experts from the US financial services company “S&P Global Ratings”, write in the report, the demand for debt – to help consumers with inflation, restore infrastructure and deal with climate change – also continues to grow. Federal funds and European Central Bank rates increased by an average of 3 percentage points in 2022. This could mean that interest expenses will rise by $3 trillion.

Chan and Dimitrijevica pointed out that rising interest rates and a slowing economy are making the debt burden heavier. At the same time, analysts noted that since 2007, debt has become less productive. This means that the value that each additional borrowed dollar adds to the economy has decreased.

The UN sees the debt burden as one of the problems for the economy this year

The United Nations (UN) also mentioned the debt burden as one of the problems in its report on the economy of 2023. Experts explained that tighter global financial conditions combined with a strong dollar exacerbated fiscal and debt vulnerabilities in developing countries.

The representative of the UN Department of Economic and Social Affairs, Shantanu Muherier, said: “At a time when countries are under pressure to cut public spending in the short term, they risk squeezing themselves by underinvesting in human capital, green energy and digital transformation, or even climate resilience. This undermines these countries’ growth and debt sustainability in the long term.”

According to the UN report, slower growth coupled with higher inflation and increasing debt vulnerabilities threaten to further hamper hard-won gains in sustainable development, deepening the already negative impact of current crises.

International Monetary Fund: Debt difficulties are particularly worrying in developing countries

The International Monetary Fund (IMF), for its part, said governments will need to be able to manage debt vulnerabilities, including at a time when central banks are raising interest rates to fight inflation, raising borrowing costs for both the public and private sectors.

The IMF also points out that debt difficulties are particularly worrisome in low-income developing countries, where the scars left by the pandemic are more common than elsewhere and the spread of public debt is increasing significantly.

International organizations such as the IMF need to strengthen and improve the public debt financing system so that emerging economies can emerge from debt difficulties more quickly. This is the opinion of the former head of the central bank of Pakistan, Reza Bakir. He explained that the outlook for emerging markets has “deteriorated very rapidly” over the past two years, with the main reason being the rapid increase in public debt.

Bakir pointed out: “Those who have already made progress in strengthening monetary policy to reduce inflation, those who are successful in implementing macroeconomic policy will be rewarded by investors. But many who are heavily indebted and do not have a good track record in macroeconomic management, they will continue to face challenges because the financing rates in the world are still much higher than they were five years ago.”

Getting out of the crisis might require unpopular policies

The exit from the global debt crisis is not easy, write the analysts of the company “S&P Global Ratings”. Averting a crisis will require unpopular actions and a “reset” of policymakers’ thinking. This may mean lending more cautiously, curbing overspending and restructuring unprofitable projects or businesses.

At the same time, experts have mentioned that borrowing is not always bad. In particular, many governments can thus help more vulnerable citizens and businesses cope with rising food and energy prices.

And ultimately, governments, businesses and households will have to pay for more frequent extreme weather events and climate change mitigation. But countries will need to continue building new infrastructure to adapt to the low-carbon and digital economy.

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