While great efforts are being made to keep inflation levels under control, concern is growing that these debts may turn into a time bomb that will trigger a new global economic crisis. Will the world be able to face these challenges? Can current policies prevent the debt crisis from turning into an economic disaster?
In its latest financial policy report, the International Monetary Fund warned that global public debt will continue to rise to exceed the level of $100 trillion by the end of this year, representing 93 percent of global gross domestic product, pointing out that the financial situation of some countries may be “worse than it is.” expected”.
The fund stated that Public debts There has been no increase in percentage level, as it has reached 93 percent since last year, but it is increasing in value, and this trend is unlikely to change, as the percentage is expected to reach 100 percent by 2030, an increase of 10 percent from 2019 before the outbreak of the Corona epidemic.
The difficulty of balancing debt service and achieving sustainable development
Public debt can be vital to development and a driver of economic growth, as governments use it to finance their expenditures, protect their people, invest in their projects and pave their way to a better future. However, it can be a heavy burden when public debt grows too large or too fast, and this is happening all over the world, both in developing and developed countries. After public debt reached unprecedented levels, causing a foreign debt crisis that affected many countries, according to economist Dr. Muhammad Jamil Al-Shabashiri.
Dr. Al-Shabashiri stated in his interview with “Iqtisad Sky News Arabia” website that debt service in Italy constitutes approximately 20 percent of the total budget, while in Egypt, interest payments reach about 40 percent of public revenues, which hinders these countries from directing their resources toward… Vital sectors such as education and health. He also pointed out that public debt in the United States exceeded 130 percent of GDP, which raises growing concerns about the sustainability of this debt in the long term.
The economist added: “These ratios indicate the great challenge facing governments, as it has become difficult to balance debt service and achieving sustainable development. For example, developing countries are suffering from a double crisis due to the depletion of their cash reserves and the decline in the value of their national currencies, which increases the burdens Paying off debts exacerbates the economic downturn. In an attempt to alleviate these burdens, some countries rely on sharply reducing imports, which affects the standard of living and sometimes causes a huge rise in unemployment rates and prices.
The debt crisis is turning into a disaster for the people of developing countries
The external debt crisis has turned into a real disaster for the people of developing countries, as it threatens the political and social systems with unrest that may lead to the situation erupting. Although international institutions such as the International Monetary Fund and the United Nations have called for intervention to treat this crisis, existing interventions often come with austerity conditions that increase pressure on these countries and worsen their economic conditions, according to what Dr. Al-Shabashiri said.
In the face of this situation, it seems that the debt crisis has become the focus of a global conflict between creditor and debtor countries, and has transformed from a mere economic crisis into an international political problem of the first degree. In this context, the United Nations presented a roadmap for reforming the global financial system, which includes addressing the high cost of debt, expanding concessional financing for development, and providing emergency financing to countries in need, as he put it.
Economist Dr. Al-Shabashiri points out that “more than 3.3 billion people today live in countries that spend more on interest payments than on education or health. This situation hinders people’s prosperity and threatens their future. It has become clear that the current international financial system needs fundamental reforms that enable Countries have access to concessional and sustainable financing, without having to fall into the trap of more debt that hinders development and leads to more economic and social crises.
He stresses that the crisis, whether in developing or developed countries, requires radical solutions away from traditional policies that rely on more borrowing and austerity. International efforts should focus on supporting sustainable economic growth, promoting investments in infrastructure and education, and achieving economic diversification that protects countries from economic fluctuations and maintains their ability to fulfill their obligations without sacrificing the future of their people.
In turn, economic expert Ali Hamoudi said in his interview with “Iqtisad Sky News Arabia” website: “The world is already looking at a debt crisis that will continue at least for the next 10 years, with it reaching record levels, and even with a significant increase in both high-income countries and countries.” Emerging markets, as a share of global GDP, debt rose to 336 percent. This compares to the average debt-to-GDP ratio of 110 percent in 2012 for advanced economies, and 35 percent for emerging economies in the last quarter of 2022, according to the latest report Global Debt Monitor issued by the Institute of International Finance.
In order to be able to pay debt installments and service their debts, it is estimated that about a hundred countries will have to reduce spending on vital social infrastructure, including health, education, and social protection, according to Hamoudi, who explained that countries that are able to improve their financial situation may benefit from attracting labor and capital. Money and investment from abroad, while countries that are unable to do so may lose talent, revenues, and perhaps more than that. It would not be unlikely that some major countries that do not address their debt issues seriously will suffer greatly, that the problem will worsen, and that some economies will go bankrupt. Emerging.
Economist Hamoudi added: “We should also remember that mature economies such as the United States, the United Kingdom, Japan and France are responsible for more than 80 percent of the debt accumulation in the first half of last year. In the case of emerging markets, China, India and Brazil also witnessed the most pronounced increases.” “So debt repayment will become a more pressing issue as populations in developed countries continue to age and workers become scarce.”
Radical solutions
In order to prevent the debt crisis from turning into an economic disaster, Hammoud stressed the urgent need to:
- Governments and financial policymakers implement structural reforms to improve economic productivity and growth potential.
- Coordinating efforts among international creditors to relieve debt burdens on burdened countries with programs designated for this purpose.
- Coordinating policies and encouraging international cooperation between governments and central banks to stabilize global economic conditions.
- Encouraging investments that promote long-term sustainable growth and reduce future debt needs.
