State debt pressures are mounting as yields on medium- and long-term government bonds in several of the world’s largest economies reach their highest levels in more than a decade.
The United States, Japan, France and the United Kingdom are among the economies experiencing rising bond yields, reflecting investor concerns over higher interest rates, persistent energy costs, weak economic growth and elevated government spending.
The Institute of International Finance (IIF) said the four major economies were facing “persistently large deficits and rising interest expenses,” challenges it said had long been associated with debt-distressed emerging market sovereigns.
The Washington-based group found that advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds last year. The amount was higher than global spending on artificial intelligence, at $2.6 trillion, defence, at $3.1 trillion, and clean energy, at $2.3 trillion.
The IIF warned that debt had become a political issue, creating what it described as a “vicious cycle between elections and short-term quick fixes” while increasing long-term vulnerability as the marginal utility of higher debt diminishes.
“As benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed,” the IIF said.
In its economic outlook published on Wednesday, the Organisation for Economic Co-operation and Development said rising bond yields underscored the need for governments to “contain and reallocate government spending, improve public sector efficiency and strengthen revenues.”
The OECD said reforms were needed to ensure longer-term debt sustainability and enable governments to respond to future economic shocks.
Meanwhile, International Monetary Fund Managing Director Kristalina Georgieva told the BBC that shocks to the global economy were pushing debt levels higher, while criticising governments for failing to take sufficient action.
“There are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability,” Georgieva said.
She added that governments needed to find the courage to take the necessary steps, despite the political difficulty involved.
Boluwatife Enome
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