Global debt crisis looms as IMF warns of unsustainable borrowing

 

The International Monetary Fund (IMF) has warned that the world is facing a dangerous debt crisis as many countries have borrowed excessively to cope with the pandemic and its aftermath.

According to the IMF, global public debt is expected to rise from around 20% of gross domestic product (GDP) in 2005 to almost equal the size of the global economy by the end of the decade. Total debt, including borrowing by governments, households and businesses, now stands at $307 trillion, up $10 trillion in the first six months of 2023.

The IMF said that many countries are now on course to grow at half the rate they used to, leaving the world on track for permanently lower growth that exposes it to economic shocks and "diminished opportunities to overcome the scarring from the pandemic and the war".

The IMF’s latest global outlook also highlighted the uneven recovery across regions and income groups, with advanced economies recovering faster than emerging markets and low-income countries. The IMF urged more international cooperation and support to ensure a more balanced and inclusive recovery.

The rising debt levels have also increased the vulnerability of many countries to higher interest rates, which have soared as some central banks have started to tighten monetary policy in response to inflation pressures. The cost of servicing debt has also risen as some countries continue to borrow heavily to finance their fiscal deficits.

The IMF called for more fiscal discipline and transparency, as well as reforms to boost growth potential and resilience. It also stressed the need for more debt relief and restructuring for countries with unsustainable debt burdens, especially in Africa.

The IMF’s warning echoes the concerns of many analysts and investors, who have been alarmed by the surge in debt around the world. Some have compared the current situation to the previous episodes of debt crises that hit Latin America in the 1980s, Asia in the 1990s and the global financial system in 2008.

However, some experts have also argued that not all debt is bad, and that borrowing can be justified if it is used for productive purposes, such as investing in infrastructure, education and health. They have also pointed out that some countries have more fiscal space and credibility than others, and that debt sustainability depends on various factors, such as growth prospects, interest rates, exchange rates and institutional quality.

Source: Yahoo.com

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