Tuesday, January 18

IMF warns of the “vulnerabilities” caused by the debt, but sees its increase in 2020 “justified”

The International Monetary Fund (IMF) has alerted that the increase in debt that took place during 2020 amplifies financial vulnerabilities globally, although he has indicated that the greater indebtedness of last year was “justified” by the global pandemic, according to a published blog entry.

“The increase in debt amplifies vulnerabilities, especially as financing conditions tighten. The high levels of debt limit, in most cases, the capacity of governments to support the recovery and the capacity of the private sector to invest in the medium term, ”emphasized IMF technicians Vitor Gaspar, Paulo Medas and Roberto Perrelli.

In any case, the increase in indebtedness was “justified” by the need to protect lives, jobs and prevent bankruptcies. “If the governments had not acted, the social and economic consequences would have been devastating,” the technicians have assured.

The pandemic of Covid-19 caused that in 2020 the largest annual increase in debt will be registered since the Safe World War, based on fund calculations. Global debt reached 226 trillion euros (200.5 trillion euros). In relative terms, it stood at 256% of global gross domestic product (GDP), 28 points more than in 2019.

By sectors, Public debt reached 99% during 2020, while that of non-financial companies stood at 98% and that of households reached 58%. In this way, public debt already accounts for almost 40% of total global debt, its highest share since the mid-1960s. The IMF has explained this because since 2007 there have been two major economic crises.

Looking ahead to the next few years, the “crucial challenge” is to achieve the “right mix” of monetary and fiscal policies in an environment of “high debt and rising inflation”. The Fund believes that vulnerabilities and prospects make it very important “to strike the right balance between policy flexibility, rapid adjustments to changing circumstances, and commitment to credible and sustainable medium-term fiscal plans.”