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The crown pandemic has pushed public debt, as a percentage of gross domestic product, to exceed historic levels around the world. For industrialized countries, debt has exceeded the debt level of World War II.
– the worse it will get
It’s in red on the spreadsheets of the International Monetary Fund (IMF). Roughly half of the world’s low-income countries were on the verge of being unable to pay off debt before the corona pandemic began.
– The longer this problem is postponed, the worse it will get. A debt crisis from the corona pandemic cannot be ruled out, IMF Director Geoffrey Okamoto said Thursday during a speech at the Peterson Institute for International Economics think tank.
According to Okamoto, there are two reasons why the world has avoided a systematic debt crisis. One is very low interest rates and massive monetary policy support. According to the IMF, these measures are worth 73 trillion dollars.
The second is that the G20 countries and the “Paris Club”, which consists of the world’s largest creditor nations, agreed to allow poor countries to defer payment of interest and debt installments until the end of 2020.
The IMF and the World Bank believe that this is not enough.
“It is a critical time for the world and one cannot sit still and wait for a crisis,” writes IMF chief Kristalina Georgieva in a new blog post, urging member states to extend their debt until 2021.
IMF leadership believes it is necessary to implement reforms in the international debt architecture.
“The goal is to ensure rapid and adequate debt relief for countries that need it, and that benefits not only these countries, but the system as a whole,” the IMF writes.
Perfect storm
Experts believe that it is inevitable that the world ends in a serious debt crisis.
– The problem in a nutshell is that emerging countries entered a crisis with record debt and now we have had the worst recession in 90 years. “If this is not going to trigger a crisis, I don’t know,” Desmond Lachman, an international debt expert at the American Enterprise Institute, told Marketwatch.
He believes that this is a “perfect storm” for many countries. Commodity prices have fallen, demand from export markets has dried up, and many of those working abroad are no longer able to send money back to their home countries.
As soon as the markets reject the risk, you will see that these countries begin to crumble. The real problem is Latin America. I am particularly concerned about Brazil, where the budget is out of control, he says.
Debt pandemic
A group of renowned economists warns of a “debt pandemic” in a new report, released by the IMF in late September.
“For some countries, a crisis is imminent. For many more, exceptionally low interest rates can delay settlement time. Defaults are increasing and so is the need to restructure debt,” writes the team of experts, which includes the Harvard professor Kenneth Rogoff.
China’s unconventional methods of combining loans, aid and investment with hidden agreements and commitments have made it difficult to obtain a complete picture.
“A significant new complication in assessing the debt of many developing economies involves China, which has become the largest bilateral creditor in recent years. Unfortunately, China’s loans are often embedded in clauses that are not they publish and it is difficult to form a complete picture “, write the four economists, in which the chief economist of the World Bank, Carmen M. Reinhart also participated.
Western countries want to avoid debt cancellation that leads vulnerable countries to turn around and make new loans to pay off debt obligations to China, according to Lachman of the American Enterprise Institute.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases via a link, which leads directly to our pages. Copying or other use of all or part of the content may only be done with written permission or as permitted by law. For more terms, see here.
