Global debt pile reaches war-time levels

Global governments' fiscal support measures has left us with “war-time era” debt levels. A reckoning is inevitable.

The world’s governments “have rolled out $16trn of fiscal measures to prevent economic collapse during the pandemic”, says Enda Curran on Bloomberg. That has left us with “war-time era” debt levels. The UK’s government debt-to-GDP ratio is expected to hit 113% in 2026, up from 85.2% pre-pandemic, one of the biggest increases among all advanced economies. Ultra-low interest rates on government bonds – the UK’s ten-year gilt currently yields 0.623% – are keeping these debt levels manageable for now, says James McCormack of credit rating agency Fitch. Yet in the longer-term a “fiscal adjustment” (spending cuts and higher taxes) will probably be needed to get global government finances back on track.  

Climate change will worsen debt dynamics over the coming decades, say Dhara Ranasinghe and Karin Strohecker on Reuters. “While developing countries are inherently more vulnerable to rising sea levels and drought, richer ones will not escape.” A report by index provider FTSE Russell finds that “Malaysia, South Africa, Mexico and even... Italy may default on debt by 2050”. Many nations could also be heading for climate-induced credit downgrades, leading to higher borrowing costs and more onerous national debts. 

As during the 1970s, “the economy looks shaky and society is becoming more fractious”, says Liam Halligan in The Daily Telegraph. “The emerging parallels between contemporary British trends and those weird, dysfunctional years… are stark.” Even the Afghan debacle is reminiscent of “America’s 1975 retreat from Saigon”. By 1976 “a near-bankrupt Britain” was forced to beg the International Monetary Fund for a bailout. This time too, “after years of high borrowing and mass money-printing… a fiscal reckoning... seems inevitable”

Recommended

The best 0% balance-transfer credit cards
Credit cards

The best 0% balance-transfer credit cards

These 0% balance transfer credit cards offer some of the best deals on the market today.
9 Jun 2023
Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
9 Jun 2023
Share tips of the week – 9 June
Investments

Share tips of the week – 9 June

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
9 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn over 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the best deals available now.
9 Jun 2023

Most Popular

Best debit and credit cards to use while travelling abroad
Personal finance

Best debit and credit cards to use while travelling abroad

If you’re going on holiday or travel abroad regularly, it’s worth knowing what the best card is to avoid hefty fees. We weigh up the charges and any p…
6 Jun 2023
Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
A discounted REIT to buy now
Investments

A discounted REIT to buy now

This real estate investment trust is carving out a niche for itself by recycling old offices. Investors should take advantage of the discount and buy …
6 Jun 2023