World economy WARNING: Biggest nations at RISK as rising interest rates to strangle budget
THE world economy is at risk from a rising tide of government debt which is set to hit rich countries’ budgets, a shock report has warned. Bosses from the Organisation for Economic Cooperation and Development (OECD) said the threat of rising interest rates will send public debt soaring.
Mark Carney details decision to increase interest rates
Low interest rates had sustained high levels of government debt up until now, but it “may not be a permeant feature of financial markets”, they said.
They warned government budgets would be faced with “significant challenges” as developing countries face a rising tide of crippling debt.
The total stock of the 35 OECD members’ sovereign debt has rocketed from $25trillion (£17.9trn) in 2008 to more than $45trn (£32trn) this year.
Member nations of the OECD, a economics intergovernmental organisation, have now been warned to prepare to refinance 40 per cent of their total debt stock in the next three years as the debt accumulated from the financial crisis ratchets up in the coming years.
The total stock of the 35 OECD members’ sovereign debt has rocketed from $25trillion (£17.9trn) in 2008 to more than $45trn (£32trn) this year
Fatos Koc, senior policy analyst at the OECD, warned the group’s members, which include Britain, the United States, Autralia and Germany, that will be faced with an “increasing financing burden from maturing debt, combined with continued budget deficits”.
Members are set to borrow £10.5trillion from the markets this year as debt to GDP ratios across the OECD averaged at 43 per cent last year.
Ms Koc told the Financial Times it was “important to create strong fiscal root in an economy while times are good”.
Many countries have seen their credit ratings decline as their debt levels rise over the past decade.
Carney: New relationship with EU will impact economic outlook
This in turn can diminish the attractiveness of some sovereign debt for investors looking for high-quality credit.
Meanwhile, as the global economy marks a upswing in growth, policymakers are gradually reducing the monetary policy measures put in place after the crash.
Bond yields have shifted upwards as central banks holding of debt decrease and interest rates rocket.
The OECD is made up of 35 member countries including Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.