Time for the Developed World to Rein in the Debt Crisis

196

The current state of the global debt crisis paints a frightening picture and makes an alarming forecast about the future of the economy. This time around, however, the issue is not confined to affecting the economy of a single nation or area; rather, it is affecting the economy of the whole world. A growing number of nations are struggling to pay their debts in this frightening period, and the breaking point is drawing near.

Around 25% of developing economies and 60% of low-income nations are already experiencing or are at high risk of a debt crisis. A major debt crisis is also now affecting around 54 emerging economies. Although they account for just more than 3% of the global economy, they make up 18% of the world’s population and more than 50% are living in conditions of severe poverty. 

In addition, these nations have an annual debt payment obligation of $62 billion to official bilateral creditors, a 35% rise from 2021, raising concerns about the likelihood of rising debt loads.

What caused the crisis? 

One of the most significant developments in global finance over the past ten years and a major risk factor for the economic slowdown, financial market volatility, and global financial instability in borrowing countries has been the worsening scale of external debt, particularly in emerging and developing market economies and poor countries.

The Covid-19 pandemic’s economic effects and the outbreak of the Ukraine war have exacerbated this situation. Based on the growing number of indicators and events anticipated to have a direct impact on the debt landscape, projections anticipate that the debt problem will continue to deteriorate throughout 2023, notwithstanding the present economic constraints.

In 2022, the world experienced a cascade of extraordinary occurrences, the majority of which triggered a domino effect.

– S. M. Saifee Islam is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA).

Published in The Business Standard [Link]