The International Monetary Fund (IMF) has warned that the public debt in developed countries stands at “wartime levels” and poses a major threat to the global economy.
“Without growth, the future of the global economy is in jeopardy, and perhaps the greatest roadblock will be the huge legacy of public debt, which now averages 110 percent in advanced economies, pretty much wartime levels,” said IMF Managing Director Christine Lagarde at the annual meetings of the International Monetary Fund and the World Bank in Tokyo on Friday.
“And this leaves governments highly exposed to subtle shifts in confidence,” she added.
“We have seen it. We are seeing it in the eurozone for instance. It also ties the governments’ hands, especially as they seek to build the infrastructure of the 21st century while keeping the policies, particularly the social promises of the 20th century.”
Lagarde further highlighted that decreasing public debt loads is of utmost importance, while noting it was “incredibly difficult without growth.”
On October 9, the IMF reported that the global economy could get worse due to the eurozone crisis and the US fiscal cliff in the future.
The report read, “A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component… The answer depends on whether European and US policymakers deal proactively with their major short-term economic challenges.”
The international organization also warned on October 10 that the global financial confidence is “very fragile,” calling on European policymakers to strengthen the financial ties within the euro area.
Europe plunged into financial crisis in early 2008. Insolvency now threatens heavily debt-ridden countries such as Greece, Spain, Portugal, Italy, and Ireland.