The world’s US$100 trillion fiscal timebomb keeps ticking
EVEN before global finance chiefs fly into Washington over the next few days, they’ve been urged in advance by the International Monetary Fund (IMF) to tighten their belts.
Two weeks ahead of a potentially era-defining US election, and with the world’s recent inflation crisis barely behind it, ministers and central bankers gathering in the nation’s capital face intensifying calls to get their fiscal houses in order while they still can.
The fund, whose annual meetings begin there on Monday (Oct 21), has already pointed to some of the themes it hopes to press home with a barrage of projections and studies on the global economy in coming days.
The IMF’s Fiscal Monitor on Wednesday will feature a warning that public debt levels are set to reach US$100 trillion this year, driven by China and the US. Managing Director Kristalina Georgieva, in a speech last Thursday, stressed how that mountain of borrowing is weighing on the world.
“Our forecasts point to an unforgiving combination of low growth and high debt – a difficult future,” she said. “Governments must work to reduce debt and rebuild buffers for the next shock – which will surely come, and maybe sooner than we expect.”
Some finance ministers may get further reminders even before the week is over.
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UK Chancellor of the Exchequer Rachel Reeves has already faced an IMF warning of the risk of a market backlash if debt doesn’t stabilise. Tuesday marks the last release of public finance data before her Oct 30 budget.
Meanwhile, Moody’s Ratings has slated Friday for a possible report on France, which faces intense investor scrutiny at present. With its assessment one step higher than major competitors, markets will watch for any cut in the outlook.
As for the biggest borrowers of all, the glimpse of the IMF’s report already published contains a grim admonishment: your public finances are everyone’s problem.
“Elevated debt levels and uncertainty surrounding fiscal policy in systemically important countries, such as China and the United States, can generate significant spillovers in the form of higher borrowing costs and debt-related risks in other economies,” the fund said.
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