Financial Markets: With The Rise In Rates, A Next Sovereign Debt Crisis To Come?

To support the economies weighed down by the “subprime” and Covid-19 crises, the States have massively resorted to debt. But central banks are beginning to raise their key rates in order to curb inflationary pressures. The most fragile countries on the planet are on the front line of higher borrowing costs, with the potential risk of default in sight.

A necessary weapon to fight crises, debt has reached worrying levels around the world as interest rates rise, prompting Davos to wonder about the risks of future “debt crises”.

Public debt is close to 120% of GDP in advanced countries, assessed Wednesday the number two of the International Monetary Fund (IMF) Gita Gopinath during a round table on the subject. And it has “significantly increased” among emerging and developing countries.

More than half of low-income countries are already in “distress” or at high risk of becoming so, she warned. “We could certainly see an intensification of these situations of distress”, continued the former chief economist of the institution, however ruling out for the moment a scenario of “debt crisis” on a global scale, a month and half after Sri Lanka’s default.

Public debts have particularly widened with the last two major global crises: financial from 2007-2008 with “subprime”, then health with the Covid-19 which forced governments to take out the checkbook everywhere in the world from 2020. Now concern dominates as to how to manage them.

Especially since there is not only the debt of the States: according to the Institute of International Finance (IIF) based in Washington, the public and private debt, companies and households, peaked in the first quarter at the record level of 305 trillion dollars.

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