Many Low Income Countries Will Face Unsustainable Debt – IMF

As global debt profile continues to shoot upward, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, predicts that many low-income countries will have unsustainable debt burdens.

Speaking to the media at the sidelines of the World Bank group spring meetings in Washington, Lagarde said financial vulnerabilities are increasing with the rise in debt.

“In low income countries, if recent trends continue, many, not all, wll face unsustainable debt burdens.

“Third cloud, financial vulnerabilities have increased due to high debt, rising financial market volatility, and elevated asset prices. A sudden tightening of financial conditions could lead to market corrections, unsustainable debt, and capital flow reversals.”

Lagarde warned that public debt in advanced countries have risen to figures not seen since the 2nd World war.

She stated that the world’s debt profile has soared to $164 trillion, which is 225% of Gross Domestic Product (GDP): “global debt is at all time high. It stands at $164 trillion, which is 225 percent of gross domestic products, GDP, of which the private sector accounts for two-third. Public debt in advanced economies is at levels not seen since Second World War.”

The IMF boss said the short-term prospect for the global economy remains positive. It is times like this, when the sun is shining ‘that you fix the roof,’ she observed.

According to her, several governments have not maximized this window of sunshine and more clouds are gathering than those seen in 2017.

“So overall, the near-term prospect for the global economy continues to be bright. At the same time, while the sun is shining we are seeing more clouds accumulating on the horizon than we did back in October 2017.

“Some of you will remember that back in October, we said it is when the sun is shining that you fix the roof. So first thing, have some governments taken measures to fix the roof? Well, some have, but certainly not all; and more needs to be done to sustain this upswing and foster long-term growth. IMF expects the sunshine to persist. It has pushed up its growth projection from 3,7% in 2017 to 3.9% for the year.

Lagarde says the momentum is driven by the U.s, Europe, Japan, China and many emerging economies.

“It is clearly a pickup in our projections, and we maintain it this year and next.”

The momentum has been driven by stronger investment and a rebound in trade. It is broad-based, and it involves the USA, Europe, Japan, China, as well as many other emerging and developing countries, yet not all.”

At the unveiling of the world economic outlook, the chief economist in IMF Maurice Obstfeld, said on Monday that Nigeria and other commodity based markets might not get it so lucky if prices tumble down again.

He advised these countries to diversify their economies in order to avoid shocks from a fall in commodity prices.