Finance & Economics
Short-term solutions lacking for the impending global public debt crisis

Short-term solutions lacking for the impending global public debt crisis

The global economy is facing a looming threat as the public debt crisis continues to grow at an alarming rate with no immediate solutions in sight. The issue is not only confined to less developed countries, but developed ones are also at risk. Many countries have become too reliant on loans to manage their short-term needs, and this has turned into a habit each time economic challenges strike.

According to the International Monetary Fund (IMF) and the Institute of International Finance, there has been a significant increase in the volume of public debt. In 2020, the public debt was $226 trillion, and by the end of last year, it had risen to $303 trillion, a 34 per cent increase. Sovereign debt, which represents 40 per cent of the total public debt, has reached $121.2 trillion, equivalent to 119.3 per cent of the global GDP of $101.6 trillion in 2022.

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Image Source : World Bank Blogs

Various factors have contributed to the significant increase over the past two years, with the pandemic playing a crucial role in driving up public debt. High-interest rates, wars, and conflicts have also contributed to higher inflation rates, increased borrowing to cover deficits, and a surge in military expenditures and import financing.

Different approaches to address the issue

Developed nations have tended to stand in solidarity with one another, as seen in the cases of Greece and Italy, where the European Central Bank and the IMF intervened to prevent their collapse. Developed countries have access to tools that are not available to others, such as printing money or quantitative easing, which can help alleviate the crisis.

For instance, the US has a public debt volume of $31 trillion in 2022, representing 124 per cent of GDP. The US has printed its way to more than $9 trillion, a tactic also employed by the European Union, China, and Japan.

The geopolitical changes associated with this economic crisis are exacerbating the issue, and it’s not something that can be ignored. The growing public debt crisis poses a significant threat to the global economy, and the lack of short-term solutions only adds to the problem. It’s time for countries to come together and find a long-term solution before it’s too late.

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