OECD Warns Rising Debt Will Hit Rich Countries’ Budgets
The world economy is at risk from a rising tide of government debt which is set to hit rich countries’ budgets, a shock report has warned. Bosses from the Organization for Economic Cooperation and Development said the threat of rising interest rates will send public debt soaring.
Low interest rates had sustained high levels of government debt up until now, but it “may not be a permeant feature of financial markets”, they said, news outlets reported.
They warned government budgets would be faced with “significant challenges” as developing countries face a rising tide of crippling debt.
The total stock of the 35 OECD members’ sovereign debt has rocketed from $25 trillion in 2008 to more than $45 trillion this year.
Member nations of the OECD, a economics intergovernmental organization, have now been warned to prepare to refinance 40% of their total debt stock in the next three years as the debt accumulated from the financial crisis ratchets up in the coming years.
The warning on the longer-term consequences of high public borrowing marks a shift in stance by the OECD, which as recently as November was praising countries for easing fiscal policy to help global growth.
In Economic Outlook, published at that time, the Paris-based organization said that “even a lasting increase in 10-year government bond yields of 1 percentage point?.?.?.?might worsen budget balances on average by only between 0.1% and 0.3% of GDP annually in the following three years”.
But she now argues that the wisdom of using fiscal measures as economic stimulus depends on an individual country’s budget position, and that it is “important to create strong fiscal roots in an economy while times are good”.
Debt to GDP ratios across the OECD averaged 73% last year and its members are set to borrow $14.67 trillion from the markets this year.