IMF warns that global public debt approaches 100% of GDP and defends fiscal discipline
Kristalina Georgieva says that growth alone will not reverse the rise in debt and calls for spending control
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM TIMES BRASIL · 2 MIN
Global public debt is approaching a level the world has not seen since World War II. According to Times Brasil, the managing director of the IMF, Kristalina Georgieva, stated that the ratio between debt and GDP on the planet is heading towards 100%.
According to the same report, the IMF projects that this ratio will reach 100% in 2029. The data draws attention because Georgieva assesses that economic growth, alone, is not capable of reversing the rise in debt. Therefore, she defends fiscal discipline as part of the answer.
Another pressure point is the cost of rolling over this debt. Also according to Times Brasil, the cost of refinancing is rising, which means that governments are starting to pay more to finance what they already owe. The larger the portion of the budget consumed by interest, the smaller the space for other expenses.
The recommendations cited in the report have two axes: stimulating growth and controlling public spending. For the editorial line of this newspaper, which advocates fiscal responsibility and lower taxes, the second axis is the most important, because growth without spending containment tends not to solve the problem.
The warning goes beyond government accounts. When debt grows and the cost of financing it rises, capital starts to compete for space with the private sector, and interest rates tend to stay higher for longer, which affects the pricing of practically all assets.
What changes for the investor
For those who operate the stock market, Nasdaq, interest rates and the dollar, the possible effect goes through three channels. Higher interest rates for longer periods reduce the present value of future profits, which weighs on growth companies, which are heavily present in the American index. Any pressure on sovereign bonds also changes the cost of capital and can influence the exchange rate. A fiscal discipline agenda, if carried forward, tends to reduce the risk premium and uncertainty. These are possibilities that depend on decisions by governments and central banks, not price predictions, and do not constitute a recommendation to buy or sell any asset.
Automatically translated from Portuguese.
