BEIJING, CHINA – NOVEMBER 13: Illuminated skyscrapers stand in the central business district at sunset on November 13, 2023 in Beijing, China. (Photo by Gao Zehong/VCG via Getty Images)
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The executive director of the Institute of International Finance warned on Tuesday that policymakers must quickly address record levels of global debt, describing the looming crisis as a “huge fiscal problem.”
Tim Adams, CEO of IIF, sounded the alarm about rising debt levels in a conversation with CNBC's Silvia Amaro at the World Economic Forum in Davos, Switzerland.
The issue has been largely overshadowed at the WEF annual meeting, which runs through Friday, as the rise of artificial intelligence and conflicts in the Middle East and Ukraine figure higher on the forum's agenda.
“We have a debt problem worldwide. We have the highest level of debt in a non-war period in modern history, across corporations, households, states and sub-states.” [levels]Adams said.
“We have a huge budget problem everywhere, including in the USA, where we are running.” [a] Deficit at 7% of GDP. “We need sobriety and focus on how to get our finances in order,” he added.
The global banking sector's leading trade group said late last year that global debt rose to a record $307.4 trillion in the third quarter of 2023, with significant increases in both high-income and emerging markets be.
The IIF said it expects global debt to reach $310 trillion by the end of 2023 and warned that elections in over 50 countries and regions this year could usher in a shift toward populism that could lead to even more lead to higher debt levels.
“I worry about geopolitics every day,” Adams said. “I think it’s going to be a challenging year.”
Asked whether high global government debt matters at a time when major central banks are poised to cut interest rates, Adams replied: “It matters for demographic reasons. We have an aging population in so many parts of the world, from China to all of Europe,” to the United States and Japan.
“We need to build this capacity and deal with the huge debt overhang in the future. And this is a time of peace, so the question is how can we do this quickly and intelligently? But we all need to focus on financial imbalances.”