Tuesday, February 27, 2024

‘We have a huge fiscal problem’: Banking group IIF sounds the alarm on record global debt

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BEIJNG, CHINA – NOVEMBER 13: Illuminated skyscrapers stand at the central business district at sunset on November 13, 2023 in Beijing, China. (Photo by Gao Zehong/VCG via Getty Images)

Vcg | Visual China Group | Getty Images

The chief executive of the Institute of International Finance warned Tuesday that policymakers need to swiftly address record levels of global debt, describing the brewing crisis as a “huge fiscal problem.”

IIF CEO Tim Adams sounded the alarm on rising levels of debt while speaking to CNBC’s Silvia Amaro at the World Economic Forum in Davos, Switzerland.

The issue has been largely overshadowed at the WEF annual meeting, which runs through to Friday, as the rise of artificial intelligence and conflicts in the Middle East and Ukraine take a higher place on the forum’s agenda.

“We have a debt problem globally. We have the highest levels of debt in a non-war period in modern history, and it’s at the corporate, household, sovereign, sub-sovereign [levels],” Adams said.

“We have a huge fiscal problem everywhere, including the U.S. We’re running [a] deficit at 7% of GDP. We need sobriety, and we need to focus on how we are going to get our fiscal house in order,” he added.

The global banking industry’s premier trade group said late last year that global debt climbed to a record of $307.4 trillion in the third quarter of 2023, with a substantial increase logged in both high-income countries and emerging markets.

The IIF said that it expected global debt to reach $310 trillion by the end of 2023, warning that elections in over 50 countries and regions this year could usher in a shift toward populism that brings along still-higher debt levels.

“I worry about geopolitics every day,” Adams said. “I think this will be a challenging year.”

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Asked whether high levels of global public debt matter at a time when major central banks are poised to cut interest rates, Adams replied, “It matters because of demographics. We have aging populations in so many parts of the world, from China to across Europe to the U.S. and Japan.”

“We need to build that capacity and deal with that huge debt overhang going forward. And this is in peace time, so the question is how to do we do this quickly and in an intelligent fashion. But we all need to focus on the fiscal imbalances.”

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