Debt levels in other advanced economies are also ratcheting up. The International Monetary Fund recently warned that Joe Biden’s borrowing binge in the US had put global debt on course to approach the size of the entire world economy by the end of this decade.
The World Bank also warned that China’s huge debt pile could become unsustainable if growth slowed sharply. China has also become a big creditor nation to some of the world’s poorest countries, with implications for debt restructuring.
It highlighted that China’s gross national income, which measures the total income earned by a country’s residents, regardless of where that income is generated, grew at its slowest pace in decades in 2022 amid “months of COVID-19 lockdowns, extreme weather conditions, and a historic downturn in the property market”.
Mr Gill said: “I think the real issue there is that that that if growth slows down too quickly, it can be destabilising, because it then has financial sector implications”
The World Bank’s report also warned that low- and middle-income countries paid a record $443.5bn (£350bn) to service their external debt last year. It said: “In a time of pinched government budgets, these payments diverted spending away from health, education, and other critical needs.”
It warned that debt servicing costs would continue to “consume an ever-larger share of export revenues, putting some countries just one shock away from a debt crisis. More than a third of this debt involves variable interest rates that could rise suddenly”.
Mr Gill urged policymakers around the world to prioritise bringing down debt. He said: “The problem is that good debt policy starts in good times.”
He warned that countries would not have the financial firepower to tackle big issues like poverty, climate change and technological disruption unless debts were brought back under control.
“There is an incoherence between those aspirations and reality,” he said. “Because you’re not going to be able to meet any of those objectives… unless you also have this other conversation [about debt] and solve it.”
He added: “If growth rates are going down, largely speaking in advanced economies, then what happens is these advanced economies have to start living beyond their means and what they end up doing is things like triggering high inflation and high interest rates.
“That is not something that only people in high income countries pay the price for.”
