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Bangladesh - October 19, 2023

Economy stagnates for high record debt

Industry Desk: Record borrowing, high interest rates, climate change, spending on health and pensions, and geopolitical instability have destabilized the global economy. The borrowing rate has also increased at the government level. Economists fear, thus the global economy is heading towards a new critical situation.
Investors are seeking higher compensation for holding bonds for the long term. Policymakers, on the other hand, have urged caution over financing. According to the Institute of International Finance, in the first half of 2023, economically developed countries were at the top in terms of borrowing from $10 trillion to a record $307 trillion.
In the United States, the brinkmanship system brought the issue of borrowing into default. Brinkmanship is the effort to make the best of an emerging situation. Default, on the other hand, is not being able to complete a task within a specified time. In addition, Italy and the United Kingdom are in the most worrying situation regarding borrowing. More than 20 former policymakers and economists presented the data.
Economists believe that advanced economies will not face debt repayment problems. But they called for implementation of effective revenue plan, increasing tax rate and growth as well as taking initiatives to keep the country’s economy manageable.
The UK’s 2022 mini budget showed that high interest rates and the absence of central bank support increase the risk of missteps. And wrong moves destabilize the entire market system.
Peter Priet, a former chief economist at the European Central Bank, said, “While borrowing rates have so far been at sustainable levels, they are raising concerns about long-term spending.” You can take different countries as examples if you want. But it is certain that in the future we will also face financial crisis.
Sofia Drosos, economist and strategist at Point72 Asset Management, said that large financing is currently needed. On the other hand, investors are concerned about prices as central banks end support. Daniel Evasin, chief investment officer at bond giant PIMCO, said: ‘The deficit and the borrowing rate put us in an uncomfortable situation. If a spending plan loses credibility, it creates volatility in the market.”
Italy’s 2.4 trillion-euro debt issue has become critical for Europe. According to the International Monetary Fund, countries that have taken large amounts of debt are more likely to fall into crisis. Scope Rating says Italy may not be able to join the key ECB bond-buying program.
Italy’s borrowing is on the rise as growth rates slow. This is a major risk in Europe and the UK. The strict measures taken by the government to reduce the impact of debt will also reduce the general level of investment in the country. PGIM Economist Dalip Singh said, “If steps are not taken now to achieve growth in Europe, the borrowing picture will worsen.”

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