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Impact of fiscal deficits on world debt warned by IIF

Washington, May 7 (Prensa Latina) State budget deficits could contribute around $5.3 trillion to the accumulation of global debt in 2024, the Institute of International Finance (IIF) said today.

In its quarterly report, the organization indicated that global debt increased by about 1.3 trillion dollars to reach a new historical height of 315 trillion dollars in the first quarter of the year.

Regarding government budget deficits, he warned that the amounts continue to be higher than levels prior to the Covid-19 pandemic, while he attributed the boost in debts in the first quarter of 2024 to be obligations of emerging markets, United States and Japan.

Among developed economies, the United States and Japan were the countries in which debt rose the fastest, with 17 and four percentage points respectively.

From the perspective of creditors, the payment possibilities of some borrowers could improve when analyzing the global debt-to-production ratio, a measure that increased to reach 333 percent after three consecutive quarters of decline, the IIF data maintain.

However, after three consecutive quarters of decline, the correlation between debt and Gross Domestic Product (GDP) resumed its upward trajectory, reflects the IIF’s “Global Debt Monitor.”

Emerging market debt is estimated to have reached a record high of more than $105 trillion, more than double over the past decade.

Rising trade frictions and geopolitical tensions also present “significant potential headwinds for debt markets,” the entity judged.

Another key factor, he considered, is the increase in the cost of loans due to the high interest rates of the banks.

For many emerging markets it means a weakening of currencies that further aggravates the cost of debt service and could bring tensions over public debt back to the fore, the IIF considered.

Until 2026, Pakistan must spend more than 50 percent of its income on paying interest on public debt and Egypt more than 60 percent, the text exemplifies.

The IIF is an association with more than 500 members, including commercial and investment banks, insurance companies, investment management companies, export-import multinationals, export credit institutions and multilateral agencies.