It would be the highest since World War II.
As a result of the pandemic, world debt reached a record level of $ 226 trillion last year, equivalent to 256% of the planet’s GDP, as the International Monetary Fund (IMF) announced on Wednesday.
The rise thus stands at 28% in one year, the highest since the Second World War.
“The credits assumed by governments represented just over half of this increase”, reaching a record (99% of world GDP), while “the private debt of non-financial companies and families also reached new highs”, detailed Vitor Gaspar and Paulo Medas, responsible for budget affairs at the IMF, and Roberto Perrelli, economist at the IMF, in a blog article.
Government debt is responsible for 40% of this total liability in the world, “the highest part since the mid-1960s,” the authors of the article detail.
The accumulation of this public debt is the direct consequence of two major economic crises: the 2008 global financial crisis and the coronavirus pandemic.
In 2020 “the sharp increase in debt was justified by the need to protect people’s lives, preserve jobs and avoid a wave of bankruptcies,” the specialists highlighted. “If governments had not acted, the social and economic consequences would have been devastating,” they conclude.
But they also observe that this level of indebtedness amplifies vulnerabilities, in a context that is expected to be less favorable in the future, with increases in interest rates in a context of strong inflation.
“High levels of indebtedness limit, in most cases, the ability of governments to sustain the recovery and the ability of the private sector to invest in the medium term,” adds the Fund.
Agreement with Argentina
Meanwhile, last week the IMF had made “progress” in the meetings that a team from the financial institution held for five days with representatives of the Ministry of Economy and the Central Bank of Argentina.
After concluding the meetings on Friday, the team led by the deputy director of the Western Hemisphere Department, Julie Kozack, and the head of mission for Argentina, Luis Cubeddu, issued a statement in which they indicated that progress is being made towards reaching a program backed by the IMF.
“There was a general understanding about the need to gradually and sustainably improve public finances, giving rise at the same time to much-needed investments in infrastructure, technology and targeted social spending,” they indicated from the Fund.
During the meetings held throughout this week, recent economic events were analyzed and Argentina’s growth, inflation and balance of payments prospects were discussed.
The positive note was put by a stronger than expected recovery in economic activity and investment this year, according to the IMF.
The IMF also asked the Argentine authorities for policies aimed at accumulating international reserves, which includes promoting foreign direct investment and exports. (I)
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