US-China Public Debt Hits Record High... "Debt Crisis More Severe in Poorest Countries"

Warnings have been issued that public debt in major economies, including the United States and China, will soar to record highs in five years.

Vitor Gaspar, Director of the Fiscal Affairs Department at the International Monetary Fund (IMF), pointed this out on the 12th (local time) at the IMF-World Bank (WB) Spring Meetings held in Washington DC, stating that the global debt burden has started to increase significantly, breaking away from the declining trend seen in 2021-2022 during the inflation and COVID-19 pandemic economic recovery process.

The IMF expects the global debt-to-GDP ratio to soar to a record high of 99.6% by 2028.

Gaspar predicted that the U.S. debt-to-GDP ratio will rise again from 121.7% last year to 136.2% in 2028, while China’s ratio is expected to surge from 77.1% last year to 104.9% in 2028.

Additionally, Brazil, Japan, South Africa, Turkey, and the United Kingdom are all expected to see their debt-to-GDP ratios increase by more than 5 percentage points over the next five years, significantly raising their debt burdens.

[Image source=EPA Yonhap News]

He said, "Public debt in major countries is rising higher and faster than anticipated before the pandemic," citing the recession caused by the banking crisis and fears of credit tightening as one of the backgrounds for the rapid increase in debt.

Gaspar emphasized, "Stable fiscal conditions are important not only to address short-term risks like banking crises but also long-term risks such as climate change, the transition to green energy, and demographic shifts."

He pointed out that while advanced countries can bear the increasing costs of debt repayment, developing and poorest countries cannot. He urged creditor countries, including China, to actively engage in debt relief, stating, "About 60% of countries are currently facing or are at imminent risk of debt distress."

Most of the poor countries with billions of dollars of debt to China are key target countries of China’s Belt and Road Initiative (一帶一路, the overland and maritime Silk Road). These countries have attracted massive Chinese capital during the Belt and Road projects, which involve building huge infrastructure such as roads, railways, and sea routes, causing their debt to balloon to unsustainable levels. Among these, the COVID-19 pandemic, severe inflation, and high interest rates acted as triggers, pushing some countries to the brink of sovereign default.

Earlier, finance ministers and central bank governors of the Group of Twenty (G20) discussed a plan last month to restructure $326 billion (about 424.6 trillion won) of debt owed by developing and poorest countries to creditor countries including China, the United States, and India.

This is a follow-up to the joint framework agreed upon by G20 finance ministers in 2020 for debt restructuring of developing and poorest countries. Despite this joint framework agreement, debt negotiations have faced difficulties because China, the largest creditor country and not a member of the Paris Club (a group of 22 creditor countries that introduced debt relief measures for developing and poorest countries), has not cooperated.

Bloomberg News reported that it is unclear whether the debt negotiations between the Western and Chinese creditor groups, which have been deadlocked, will make progress at this IMF-WB Spring Meetings.

This content was produced with the assistance of AI translation services.