Inflation and sustainability, two key indicators that need special attention. If the former runs up the mountain and the latter does not follow, then eventually we will find ourselves in an expensive world, with large debts, without a program for tomorrow, which in turn will inevitably lead to a subsequent correction.
When it comes to inflation, a number of economists and financiers believe that this is the basis of a healthy economy, so to speak, price and economic growth go hand in hand, not to escape, but if economic development is at the expense of borrowed money, then it is understandable that sustainability is important topic, especially for the people of my generation and our children, because, in the end, the money borrowed will have to be returned yesterday, and it is important that development continues even after the borrowed has been spent.
International Monetary Fund, this year In its publication of 27 July, it has leveled off its previously published April report and maintained projected global economic growth of 6.0% this year and 4.9% next year, while lowering its forecast for developing countries this year and improving it for the advanced economies bloc, which is good news. Latvia, because the attraction of foreign markets will also have a positive effect on our prosperity.
Last year has been a year of global borrowing, The Wall street journal said in a July 12 article that global government debt had reached its highest level since World War II, several times the global economic performance, and the International Finance Institute has calculated that by the end of 2020 it is 281 trillion US dollars or 355% of the world’s GDP, accordingly a quite logical question arises, how sustainable is the “spend-borrow-repeat” approach, or in Latvian spend-borrow-repeat?
The cost of servicing debt is the first section of the answer, and today the cost of servicing debt is at an all-time low, with central banks putting money on the market at almost 0% borrowing, free money actually available, but the question of how long central banks will continue to do so and when rates will be raised, thus limiting borrowing and making refinancing more expensive. When the sequence described above takes place, it is clear that countries with lower debt will be much more flexible in their options, and it is vital for us to keep total debt below 50% of GDP, thus maintaining a strong position in international markets. The debt of countries above the 200% of GDP threshold as of April this year is Japan (257%), Sudan (212%) and Greece (210%), while there are a number of countries with debt levels above the 100% threshold: Great Britain ( 107%), Cyprus (113%), France (115%), Spain (118%), Portugal (131%), Italy (157%), etc. Over-indebtedness is unsustainable, while productivity-enhancing borrowing is what is borrowed is not spent for social purposes, but for economic growth, and part of the money for economic growth can be reinvested in social programs.
Mankind’s encounter with the great unknown or pandemic still sets a very strong level of uncertainty in the markets today, in fact economists do not make predictions for the coming years, because it is not known when the virus will end our daily lives. In its June report on the global economic outlook, the World Bank points to strong but uneven economic growth of 5.6% this year, the highest in 80 years, with strong concentration in some major economies and a forecast that 90% of developed economies will recover by 2022. per capita income levels before the pandemic, that is, the payoff of the virus on the time axis is about two years for developed economies to return to 2019 levels. In summary, the high and growing public debt burden, inflation, commodity and food price stability, fiscal sustainability and growing inequality are issues that global policy makers will need to address in the near future. In conclusion, the key to a successful combination of national governments is prudent borrowing and targeted investment of borrowed funds, fiscal discipline and the courage to take responsibility and live with the virus in our daily lives, not forgetting the future, which is already today. the mountain of public debt and the parallel growth of public spending and investment may not be infinite.
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