The World Bank warns of an emerging debt crisis

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The World Bank warns of an emerging debt crisis

 

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Arab and international Economy News - Baghdad: A World Bank report confirms that the world is now being burdened with more debt than ever, and the situation is extremely disturbing. Public and private loans (for companies and individuals) account for 230 percent of global economic output as at the end of 2018, and more than that now . In emerging markets alone, the debt-to-output ratio is 168 per cent, which equals $ 55 trillion. Note that the ratio was 114 per cent 8 years ago, and the acceleration of debt worsening is recorded - or noticed - specifically in China and a number of other emerging countries . The report indicates that the poor and developing countries resort more and more to non-traditional creditors, and reduce their dependence on international banks since after the 2008 crisis, so we are witnessing a demand for borrowing from local and regional banks and financial markets. Valaguetrad of Chinese banks rose significantly between 2013 and 2017, for example , are not limited to , resorted to many African countries to the Chinese lender. Noting that the foreign investor generally holds 43 percent of the total debt of poor and emerging countries with short-term maturities and "non-preferential" interest rates, i.e. high compared to the interest of loans granted by development banks such as the World Bank and the European Investment Bank . The report says debt crises have recurred for at least 50 years. In the eighties of the last century, Latin American countries fell into the trap of worsening debts, and financial crises erupted there, then in the nineties the matter was repeated in Asian countries. However, these crises remained within their territorial scope and their repercussions are limited geographically and sectorally. As for the crisis, which the World Bank is currently warning of, it can have global repercussions, because the integration of emerging economies into the global economy has increased significantly in the past twenty years. In 2008, debt crises erupted globally from the United States, and emerging countries had a share of the repercussions . The report warns of a new crisis. Since 2010, loans have grown at 7 percent annually, at a rate higher than global economic output. But lower interest rates postpone the bursting of the rapidly forming debt bubble. With the benefits back on the rise, the specter of crises appears again on the near horizon . Since 1970, the World Bank has counted 520 episodes of rapid debt growth in emerging and developed countries. Half of those episodes ended in financial crises, which led to a decline in incomes and investments in countries where they exploded . The World Bank warns of a future crisis. Many poor countries or non - high income borrows from non - bound states to the Paris Club, a forum comprising the States and two creditors meet periodically in order to find coordinated and sustainable solutions to the payment problems faced by debtor countries. What is meant by "unbound" is primarily related to China. In many of the loans granted by China and its banks, and even its public companies, clauses hide the true size of the commitment faced by borrowing countries. When stumbling, problems arise that hinder debt restructuring plans . Loans granted by China to a number of poor or developing countries have conditions that remain secret, such as placing possession of property and incomes in the event of default. Another black point is that the countries that are overburdened with debt burdens do not expand, or cannot expand public investment spending that stimulates economic growth, and in some of them there is a retreat in that spending at a time when debt is growing alarmingly . A large risk in emerging economies, because 75 per cent of those countries recorded deficits in their budgets, knowing that their debts in foreign currencies are high. As for the current budget deficits, they are 4 times larger than they were in 2007, and in this regard the World Bank also warns, calling for swift action to address the imbalance before the crises worsen and erupt. Higher transparency is recommended at the level of debt, whose stated figures are not believed to accurately reflect what they are. A strict gesture of monetary and fiscal policies and tight supervision of the financial sector are also recommended . A participant in the preparation of the report notes the need to accelerate the processing of the debt of emerging economies before it is too late. He said: "The ratings of these loans are declining year after year since 2010, meaning that investor confidence is declining, currencies are retreating, deficits are accumulating and structural imbalances are exacerbating as happened in Turkey and Argentina ." Number of views 33   Date added 23/12/2019