In Focus Risk
‘The world must not sleep-walk into a debt crisis’
Governments need to work together to avoid a potential period of economic uncertainty for everyone
Patricia Scotland Secretary-general, the Commonwealth
Trade wars, protectionism, and nationalist rhetoric are combining to create the possibility of a nightmare debt crisis that could be worse than any previously experienced. Global borrowing is now at the highest
levels since the 1950s – and history suggests we should take this as a warning that a debt crisis could be looming. Were one to materialise, it could inflict
greater dislocation on international financial systems and national economic stability than ever previously witnessed.
Tragic This would be particularly tragic in view of the extraordinary global commitment to delivering the Sustainable Development Goals, and as so many nations seem finally to be in earnest about tackling the causes and impact of the climate crisis. The impact of a parallel crisis in global
debt would derail this effort, and could make much-needed international cooperation on poverty and progress impossible. Governments would be consumed by the
need to stabilise local economies devastated by unmanageable debt. Yet such a scenario can be averted.
Haunting memories Haunting memories of the economic chaos, poverty, and suffering caused by previous debt crises are the reason that the finance ministers of Commonwealth are working together to prevent the needless recurrence of an avoidable crisis. The breadth and inclusiveness of the Commonwealth means that when our member countries meet, many perspectives are brought to the table.
40 These viewpoints can be shared to decisive
A debt crisis would be particularly tragic in view of the extraordinary global commitment to delivering the Sustainable Development Goals, and as so many nations seem finally to be in earnest about tackling the causes and impact of the climate crisis. The impact of a parallel crisis in global debt would derail this effort, and could make much-needed international cooperation on poverty and progress impossible. Governments would be consumed by the need to stabilise local economies devastated by unmanageable debt. Yet such a scenario can be averted
effect when Commonwealth countries work together to ensure the voices and views of all are taken into account at forums such as the G20 and other international and regional gatherings. It is no longer feasible for policies on debt, trade, and other economic matters to be considered in isolation from the increasingly extensive impacts of climate change, which are becoming more frequent and more stark. Small island states tend to be the most
vulnerable to extreme weather and natural disasters, and also to have the least resilience or resources with which to recover from the damage to infrastructures and economies.
Borrowing With interest rates at historically low levels, borrowing becomes an attractive proposition yet heightens the concomitant risk of debt ballooning to levels which are unsustainable over the longer term. This situation raises the possibility countries which have ‘borrowed their way out of trouble’ following a setback will eventually face very severe debt distress. Preventing such eventualities is a global
challenge which requires collective and coordinated responses. The Commonwealth is particularly and
perhaps uniquely well-placed to ensure that perspectives and needs of developing nations are fully considered in multilateral discussions on policy for tackling future debt crises. This is the purpose of our Commonwealth Finance Ministers Meeting which is taking place in Washington DC alongside the annual meetings of the World Bank and International Monetary Fund.
www.CCRMagazine.com November 2019
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