World Bank flags rising debt and other economic dangers

WASHINGTON (AFP) – Rising trade tensions are the most high-profile risk to the global economy but the World Bank warned of other lurking dangers last Tuesday in its semi-annual Global Economic Prospects report.

World Bank economist Ayhan Kose, who heads the World Bank’s Development Prospects Group – which twice a year produces the global economic forecasts – explained the major concerns in an interview with AFP.

The report highlights a big jump in borrowing by the poorest nations, much of it in foreign currency and debt that increasingly is coming from private lenders that unlike the World Bank do not provide concessional terms.

And, with the United States central bank and others raising interest rates, borrowing costs are increasing.

Total debt has risen worldwide to a record USD184 trillion in 2017, according to the International Monetary Fund.

And the World Bank said low-income countries had seen public debt jump to above 50 per cent of GDP, up from 30 per cent in 2013.

“Debt levels are a concern especially when you have financial conditions that are tightening,” Kose said, noting that emerging market and developing economies “rely on external financing to roll over their debt liabilities.”

Corporate debt also has risen but “irrespective of the source of the debt, when you have balance sheet problems in a certain segment of an economy, ultimately it affects real activity,” he said.

“Borrowers need to understand the implications of rapid accumulation of debt while you have interest rates increasing at the global level.”

The World Bank said about a third of GDP in emerging market and developing economies comes from the informal sector, and in some countries the share is much higher.

“Informality is a major problem for many emerging markets and developing economies,” Kose said. “Ultimately informality is also a symptom of underdevelopment. So policies that promote growth also help improve the formal sector and provide the types of incentives for these informal firms to shift to the formal sector.”