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IMF says debt levels highest since World War II
News
April 12, 2016

IMF says debt levels highest since World War II

WASHINGTON, United States (AFP) — Public debt has soared in advanced economies to the highest levels since World War II as governments struggle against slow growth and deflation, the International Monetary Fund warned Wednesday.

Levels of government borrowing have picked up since the financial crisis and continue to rise as economic powers like Japan and Europe remain mired in very slow growth and many emerging and poorer economies struggle with the plunge in income from commodities like oil and metals.

The higher borrowing makes it harder for governments to spend any more to support growth, as the Fund has urged.

On average for advanced economies, the IMF said in its new Fiscal Monitor report, “public debt now exceeds the level observed during the Great Depression and is approaching the level immediately after World War II.”

For advanced economies, debt has risen to over 107 percent of gross domestic product, with Japan at almost 250 percent.

Emerging market economies are better off at just under 50 percent of GDP, but their needs are rising and many face greater challenges, including sharply higher fiscal deficits, than the advanced economies.

The strain between higher debt and the need to keep spending is contributing to the slow pace of growth. 

The IMF lowered its global growth forecast for 2016 on Tuesday to 3.2 percent and warned of the risk that growth could stall worldwide if action was not taken.

“Advanced economies are facing the triple threat of low growth, low inflation, and high public debt. This combination of factors could create self-reinforcing downward spirals,” it said.

Slow growth means that the financing needs of many countries are rising just as the availability of funds is tightening. The US central bank in particular has begun to raise interest rates, hiking the costs of borrowing for most countries.

As a result, more countries are approaching the World Bank and IMF for support. 

The World Bank says loan requests have surged to levels only seen during financial crises. The IMF has also seen a rise in requests for support programs, the most recent from Angola, whose financial position has been devastated by the crash in oil prices.

The IMF urges countries with some fiscal space to spend more while others need to focus spending on anything that will accelerate growth: infrastructure, education, business creation and research and development.

“A lasting solution to the debt overhang problem is not possible without higher medium-term growth,” the IMF said.

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