The IMF is sounding the clarion call on the world’s excessive debt. With $164 trillion in total debt owed, the world is further in debt than pre-Financial Crisis levels. Chris Giles writes in the Financial Times:
Global debt is now more than twice the size of the value of goods and services produced every year and at 225 per cent of global gross domestic product, it is now 12 percentage points higher than at its previous peak in 2009.
The fund said there was now an urgent need to reduce the burden of debt in both the private and public sectors to improve the resilience of the global economy and provide greater firefighting capability if things went wrong.
“Fiscal stimulus to support demand is no longer the priority,” the IMF said in its latest Fiscal Monitor, one of the reports published at its Spring meetings in Washington.
Half of the $164tr global public and private sector debt is accounted for by three countries: the US, Japan and China. The latter, where debt surged from $1.7tr in 2001 to $25.5tr in 2016, was described as the “driving force” behind the increase in global debts, accounting for three-quarters of the rise in private sector debt in the past decade.
Vitor Gaspar, director of fiscal affairs at the IMF, singled out the US for criticism, saying it was the only advanced country that was not planning to have a falling burden of debt because tax cuts would keep public borrowing high.
“We urge policymakers to avoid pro-cyclical policy actions that provide unnecessary stimulus when economic activity is already pacing up,” he said.
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Jeremy Jones, CFA
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