The World Economic Forum today entered day two with the discussion centering around global debt. According to the institute of International Finance, a global organization of the financial sector, the total global debt currently stands at US$ 305 trillion, US $ 45 trillion more than it was before the COVID-19 pandemic.
Global debt is the total amount of money owed by businesses, governments and people around the world. Developing countries have accumulated a large volume of local currency debt with the low interest rates. Debt risks are becoming increasingly alarming particularly in the developing countries.
According to Keyu Jin, an economist and a World Economic Forum Global Leader, borrowing during bad times including the current period (post pandemic) should not be a difficult process for developing countries.
It is however not the case as interest rates are going up and the exchange rates are greatly depreciating. The differential interest rates end up flowing back to the developed countries creating an imbalance.
She further added that the international credit cycle is based on the US Monetary Policy which best suits the US domestic.
‘’There is this fundamental problem in the international financial institution system which is the credit cycle, international credit cycle which is based on US monetary policy. The US monetary policy is designed to serve US domestic, our condition is not the international arena,” Ms Keyu said.
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She called on China, being the second largest economy to play a role without synchronizing credit scores with the US to become a big provider to the emerging market liquidity.
Additionally, she faulted the International Financial Architecture stating that that the International Monetary Fund (IMF) and other international institutions are insufficient to serve as the global international liquidity of last resort for developing countries.
Ms. Jin added that there is a wide gap that has to be filled and although some issues are gradually being addressed, China should play its role in solving the global financial crisis.
‘’There is a big gaping hole to be filled and I think these issues are being addressed gradually and of course it comes back to China’s role,’’ she said.
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She concluded by urging the US and China to co-ordinate better among their central banks and become real global financial anchors despite having different global visions.
