Global Debt Crisis: A Looming Threat to the Economy
The significant rise in global government debt poses a serious threat to the world economy, as highlighted by Russian Finance Minister Anton Siluanov during a recent BRICS meeting. He emphasized that the lack of a cohesive strategy to address growing debt levels is increasing financial risks globally. The American Institute of International Finance (IIF) reported that global public debt has surged by nearly one-third over the past five years, nearing $92 trillion by mid-2024, which is approximately 98% of global GDP. Projections indicate this could escalate to $145 trillion by 2030 and exceed $440 trillion by 2050.
Siluanov noted that many governments are now allocating a larger portion of their revenues to interest payments, often surpassing expenditures on critical areas such as education and social security. This trend raises alarms about the sustainability of national debts, particularly in developed nations where the political will to tackle these issues appears lacking.
The Pandemic's Impact on National Debt
The COVID-19 pandemic has been a significant catalyst for rising national debts as governments worldwide implemented massive financial support measures to stabilize their economies. This led to increased borrowing and budget deficits, with countries printing more money to stimulate economic growth. However, this approach has also contributed to inflation, complicating debt servicing as interest rates rise.
In the U.S., for example, the Treasury reported spending $843 billion on interest payments in the first 11 months of the 2024 fiscal year, surpassing expenditures on healthcare, defense, and education. As Siluanov pointed out, the growing national debt, particularly for countries issuing reserve currencies like the U.S. dollar, raises concerns about future economic stability.
Future Implications of Rising Debt
Experts warn that the unchecked growth of national debt could lead to a new global crisis. The head of Alfa-Forex's sales department, Alexander Shneiderman, highlighted the potential for increased inflation and stock market instability due to high-interest payments limiting investments in infrastructure and social programs.
In contrast, Russia's public debt remains relatively low, with estimates around 21% of GDP, significantly below the global average. This stability is attributed to prudent fiscal management and a robust economy during periods of high oil prices. As the world grapples with the implications of soaring national debts, the need for responsible financial governance has never been more critical.
