The World Bank has raised concerns about the current wave of debt accumulation across the globe, noting that the past three waves ended in financial crises, CNBC reports.
The Global Economic Prospects report released on Wednesday shows that the current wave of global borrowing is considered “the largest, fastest and most broad-based increase” since the 1970s. Global debt reached a record his in 2018, 230% of gross domestic product, and debt from developing and emerging economy set and all-time record at 170% of GDP, up by 54 percentage points from 2010.
The report adds that although the current low interest rate levels “mitigate some of the risks associated with high debt levels,” they “provide only a precarious protection against financial crises,” according to Ayhan Kose, the director of the World Bank’s Prospects Group.
“The history of past waves of debt accumulation shows that these waves tend to have unhappy endings,” Kose said in the report. “In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.”
The bank recommends four policy options that countries can follow to help prevent a financial crisis or to ameliorate one if it does occur: focus on debt management and transparency; set out blueprints on monetary policy, the exchange rate and fiscal policy; strong regulation and supervision of the financial sector to identify and snuff out risks as they emerge; and ensuring that debt is productive with proper management of public finances and the use of policies that encourage corporations to have good governance.
Theodore Bunker ✉
Theodore Bunker, a Newsmax writer, has more than a decade covering news, media, and politics.
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