Developing countries and emerging economies have received a warning from the World Bank on the worsening debt situation in these countries. The bank has said if things are not brought under control it could end in a serious crisis. The World Bank believes the amount of debts in these economies has grown larger and faster in the recent past that during any comparable phase in the earlier years.
If the crisis develops it could affect private companies and governments, it says. The situation should be a matter of concern to everybody according to the President of World Bank, David Malpass. The bank wants the countries to realise this and take actions to correct it.
In a separate statement the head of International Monetary Fund (IMF) has singled out the developing countries in Africa for the imbalance in the need to finance development keeping the debt levels at manageable levels.
Citing numbers, the IMF says the global debts stood at $188 trillion as on the end of the last calendar year, 2018. This figure is 230% of the world’s economy.
The World Bank’s report has studied the debt situation over a 50-year period starting 1970 and its conclusion is the surge in debts has been “largest, fastest and most broad-based” now than ever in these five decades.
The surge appears to have started in 2010 aided by low interest costs following the 2008 global financial meltdown and the emerging and developing economies have raised debts to the extent of 170% of their combined GDP. These countries account for debts of $55 trillion.
Any repeat of the kind of global meltdown as witnessed in 2008 happening can lead to a serious financial crisis for these countries, World Bank says.
The bank however feels it can still be managed if the countries practiced better debt management, improved tax collection, allowed flexible exchange rates and followed tighter fiscal rules to manage spending.
The purpose of this report from the World Bank and the IMF’s chief’s statement is that the countries must be made aware of the crisis and to take timely steps.