Global debt tops US$152 tril­lion: IMF

> Urges some coun­tries to spend more to boost flag­ging growth

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: The world is swim­ming in a record US$152 tril­lion in debt, the IMF said on Wed­nes­day, even as the in­sti­tu­tion en­cour­ages some coun­tries to spend more to boost flag­ging growth if they can af­ford it.

Global debt, both public and pri­vate, reached 225% of global eco­nomic out­put last year, up from about 200% in 2002, the IMF said in its new Fis­cal Mon­i­tor re­port.

The IMF said about about two thirds of the 2015 to­tal, or about US$100 bil­lion, is owed by pri­vate sec­tor bor­row­ers, and noted that rapid in­creases in pri­vate debt of­ten lead to fi­nan­cial crises.

While debt pro­files vary by coun­try, the re­port said that the sheer size of the debt could set the stage for an un­prece­dented pri­vate delever­ag­ing that could thwart a still-frag­ile eco­nomic re­cov­ery.

“Ex­ces­sive pri­vate debt is a ma­jor head­wind against the global re­cov­ery and a risk to fi­nan­cial sta­bil­ity,” IMF Fis­cal Af­fairs Di­rec­tor Vi­tor Gas­par told a news con­fer­ence. “Fi­nan­cial re­ces­sions are longer and deeper than nor­mal re­ces­sions.”

While the US has delever­aged since the 2008-2009 fi­nan­cial cri­sis, the re­port cited the buildup of pri­vate debt in China and Brazil as a sig­nif­i­cant con­cern, fu­eled in part by a long era of low in­ter­est rates.

The re­port comes as IMF man­ag­ing di­rec­tor Chris­tine La­garde is urg­ing the Fund’s 189 mem­ber gov­ern­ments that have “fis­cal space” – the abil­ity to sus­tain­ably bor­row and spend more – to do so to boost per­sis­tently weak growth.

The Fund’s call for tar­geted fis­cal sup­port for con­sumer de­mand is ac­com­pa­nied by calls for con­tin­ued ac­com­moda­tive mon­e­tary pol­icy and ac­cel­er­ated struc­tural re­forms aimed at boost­ing coun­tries’ eco­nomic ef­fi­ciency.

If a ma­jor delever­ag­ing of pri­vate debt were to oc­cur, the IMF re­port rec­om­mends that fis­cal pol­icy should in­clude tar­geted in­ter­ven­tions to re­struc­ture pri­vate debt or re­pair bank bal­ance sheets to min­imise dam­age to the over­all econ­omy.

These could be sim­i­lar to the mort­gage re­struc­tur­ing pro­grammes un­der­taken by the US dur­ing the cri­sis or the Obama ad­min­is­tra­tion’s au­to­mo­tive in­dus­try re­struc­tur­ing, Gas­par said.

“These types of poli­cies could be par­tic­u­larly use­ful in China,” Gas­par said.

“But in or­der to work, they need to be ad­e­quately de­signed and sub­ject to strong gov­er­nance prin­ci­ples.” – Reuters

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