The IMF has warned on Wednesday that the global non-financial debt, that which includes public debt, that of households and that of non-financial companies, has reached 152 billion dollars , representing 225% of the world’s GDP and supposes its maximum historical level, “which could frustrate the fragile economic recovery.”
Which estimates that two-thirds of total debt
Corresponds to the private sector (100 billion dollars), so it warns that financial crises are associated with “excessive levels of debt private ”and adds that entering into crisis in a weak fiscal position“ exacerbates the depth and duration of the subsequent recession ”.
“The reason is that the lack of fiscal defenses before the crisis significantly impairs the ability to implement a countercyclical fiscal policy,” explains the institution led by Christine Lagarde, which recommends strengthening public accounts and monitoring “strict” private debt. in the processes of economic growth.
Thus, the institution led by Christine Lagarde points out that high levels of debt could “truncate the fragile economic recovery.” “The mere magnitude of the debt could be the prelude to an unprecedented process of deleveraging the private sector, capable of truncating the fragile economic recovery,” he says.
In its analysis
The IMF notes that high levels of debt are also being observed in some emerging economies of systemic importance, particularly in China. “The most favorable financial conditions have led to a sharp increase in the indebtedness of non-financial companies in the private sector in a few emerging markets,” although he subsequently argues that monetary policy must continue to be “expansive” in countries where inflation It still remains well below the objectives of central banks.
Regarding the public debt of advanced economies, the IMF explains that bank bailouts have been one of the main causes of private sector debt being transferred to the public sector. “The most immediate effect often comes from the use of fiscal resources to clean up banks’ balance sheets, which can significantly increase public debt levels, as illustrated by recent cases in Ireland and Spain.”
Among its measures to reduce debt levels
The fund recommends “providing incentives” for banks to recognize losses and facilitate the consolidation of financial balances. “Structural policies can also improve intertemporal budget constraints by raising potential growth,” he adds.
The institution also contemplates that in cases where problems have not migrated to the banking sector, sanitation can be encouraged through fiscal interventions, in the form of government-sponsored programs to restructure private debt, which could include measures such as subsidies for that creditors extend maturities, guarantees, direct loans and asset management companies, with the support of “solid” insolvency and bankruptcy procedures.
However, the IMF’s director of fiscal affairs, Vitor Gaspar, said at a press conference that debt levels are “very different” from one country to another, so he acknowledged that “there is no single solution” that functions for all of them.
Asked about the current environment of low interest rates, which according to the IMF, have influenced the accumulation of debt in emerging countries, Gaspar has reiterated the need to apply “a strategy” for when “monetary policy” normalizes.