A wave of indebtedness in emerging and developing countries has grown faster and more significantly than at any other time in the past 50 years and could trigger another crisis, the World Bank warned on Thursday (19.12.2019).
And if that wave breaks, the consequences would be more damaging than ever, hitting private companies as well as governments at a time of slow economic growth, according to a report that analyzes the four major debt outbreaks in more than 100 countries between 1970 and 2018.
"The size, speed and breadth of the latest wave of borrowing should concern us all," World Bank President David Malpass said in a statement.
"Clearly, it is time to correct the course," he added.
The World Bank and the International Monetary Fund (IMF) have been warning for years about rising global debt, but the latest report is even harsher and insists more on the need for governments to act to avoid a crisis.
According to the IMF, global debt reached $188 trillion at the end of 2018, equivalent to almost 230% of the world economy.
The World Bank report highlights the "striking" growth of debt in emerging and developing economies, which is the "largest, fastest and most extensive" in these countries in the last 50 years.
Following a slump during the 2008 global financial crisis, debt in these countries reached an all-time high of 170% of GDP or nearly $55 trillion in just eight years from 2010, taking advantage of very low interest rates.
Much of that growth has come from China, where it has surpassed $20 trillion, but Beijing has also emerged as a major lender to lower-income countries.
The report warns that the current wave of borrowing "could follow the historical pattern and trigger financial crises in these economies," especially if interest rates peak or if there is a sudden global shock.
Better debt management, more effective tax collection, flexible exchange rates and stricter fiscal rules could help avoid a crisis or lessen its impact if one occurs.
Source: AFP
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