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Commonwealth discuss rising global debt

Commonwealth discuss rising global debt

As the world’s debt rose by $3 trillion in the first quarter of 2019, hovering near a record high of $246.5 trillion which is more than three times the size of the global economy, experts warn that high levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world’s economic recovery. Moreso, there is a growing concern that central banks’ easing policy around the globe will prompt countries to issue more debt and for some vulnerable low-income countries, debt sustainability is already at risk.

Commonwealth Secretary-General Patricia Scotland

With member countries of the Commonwealth, most of which are small island nations and fragile states, greatly at risk of the impending catastrophe, the Commonwealth finance ministers are meeting this morning on the sidelines of the IMF/World Bank annual meetings in Washington DC to discuss coordinated interventions to navigate the looming debt crises.

Zainab Ahmed, Nigeria’s Minister of Finance, Budget and National Planning

The meeting, under the theme, ‘Preventing Debt Crises: The Roles of Creditors and Debtors,’ will be chaired by the Finance Minister of CHarris Georgiades. It will be preceded by sessions for senior finance ministry officials and central bank governors.

The global debt-to-GDP ratio exceeded 318 percent in the third quarter of last year, despite a stronger pace of economic growth, according to a report by the Institute of International Finance (IIF). That was slightly below a record 320 percent of GDP in the same quarter of 2016. With interest rates rising globally, the International Monetary Fund has warned governments to rein in soaring levels of debt and rebuild buffers against future risks.

The Commonwealth finance ministers will among other issues explore policy options and strategies by which debtor countries can work with creditors to prevent the recurrence of debt crises. Debt crises, as witnessed recently in Greece and Argentina, can devastate economic growth, increase poverty and derail global agendas such as the UN Sustainable Development Goals and Paris Agreement.

Commonwealth Secretary-General Patricia Scotland said the meeting comes at a time when global financial institutions, including the IMF, have warned that another global debt crisis could be on the horizon. “We have seen the calamitous impact that the Asian debt crisis and the 2008 global financial crisis had in our member countries, and we know the grave threat that the recurrence of such crises would have on the health of the global economy. So, the countries of the Commonwealth are determined to work together to prevent this from happening,” she added.

What is expected of the finance ministers? She said “the Finance Ministers of our member nations will explore economic policy instruments to curtail rising household debt as well as how technological advancements and other approaches can promote debt transparency for improved risk assessment and debt sustainability.”

The Secretary-General will present findings of the 2019 Commonwealth Economic Development Report, which examines the debt challenges member countries had to tackle in the aftermath of the 2008 global financial crisis.

Economists at the IIF worry that the worst is still to come. Borrowing by emerging market countries — Brazil, India and China, for example — represents about 30 percent of global debt, the IIF reckons. Almost $3 trillion of these loans and bonds have to be renewed (“rolled over”) by the end of 2020. These represent financial vulnerabilities. High debt levels at some U.S. and European firms also pose dangers.

According to the IFF, total government debt exceeded $65 trillion in 2018, up from $37 trillion a decade ago, rising faster in mature markets. Non-financial corporate debt rose to over $72 trillion last year, now near an all-time high of 92 percent of GDP while household debt grew by over 30 percent to $46 trillion helped by strong growth in emerging markets, notably from China; though Czech Republic, India, Mexico, Korea, Malaysia and Chile all recorded more than 20 percent increases since 2016. The financial sector indebtedness rose to about $60 trillion, up 10 percent from a decade earlier.

At today’s meeting, the Commonwealth finance ministers will also consider ways in which the newly-developed Commonwealth financial technology (fin-tech) toolkit can be deployed to help countries create and share innovative, technology-driven responses to emerging financial challenges.

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