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Global debt at record levels, experts call for restrained spending

2024-05-11 11:22:59Kosova&Bota SHKRUAR NGA REDAKSIA VOX

 

Global debt at record levels, experts call for restrained spending

Global debt rose by around $1.3 trillion (€1.2 trillion) in the first three months of this year, reaching a new record of $315 trillion (€293.5), according to a new report from the Institute of International Finance (IIF). ). After three consecutive quarters of decline, the global debt-to-GDP ratio resumed its upward trajectory from January to March.

Emerging markets are driving the trend, the IIF claimed, with the biggest increases coming from China, India and Mexico. Mature markets, although they have recorded smaller growth, still have higher levels of debt compared to emerging economies. The IIF counts the US, Eurozone, Japan and the UK as mature markets.

For developed economies alone, the largest increases in debt this quarter were recorded in the US and Japan, followed by Ireland and Canada. Decreases were observed in Switzerland and Germany. Looking at debt by sector, government spending boosted totals in mature markets this quarter as interest rates remain historically high.

Raised rates can increase national debt as the cost of borrowing increases for governments, reducing state budgets. A stronger performance in other sectors, however, eased government debt in some advanced economies, according to the IIF. Looking ahead, the group also warned that global debt could swell further due to "rising trade frictions and geopolitical tensions".

Specifically, China's massive exports of green technology, which have fueled protectionist trends in Europe, could increase debt. If Europe decides to impose tariffs on Chinese products essential to the green transition, it is likely to raise prices for both imported and domestic goods.

That could fuel broader inflation, also fueled by a global scramble for scarce raw materials. Another debt risk, according to the IIF, is that a change in EU monetary policy could strengthen the dollar. This means that it would be more expensive for countries to pay their debts in dollars.

Countries can be pushed further into debt by high interest rates, but large piles of debt also raise interest rates, meaning nations can find themselves stuck in a vicious circle. Last month, the International Monetary Fund (IMF) – like the IIF – sounded the alarm over the debt burden.

As more than 50 countries hold key elections in 2024, governments are turning to tax-cutting and cash-flow policies. When trying to please voters, the IMF warns that policymakers should not lose sight of long-term goals.


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