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Fitch: Budget adjustments will be needed

The international credit rating agency said it expects global public debt to reach $ 95 trillion by 2022. This will be 40 percent higher than the level measured in 2019, the last full year before the coronavirus pandemic.

According to Fitch Ratings Projections

The average value of government debt-to-GDP ratios in both developed and emerging regions will be around 61 percent this year and rise to about 65 percent next year.

Meanwhile, the average interest rate to GDP for emerging economies will be 2.5% this year, well above the advanced industrial zone, which Fitch predicts will not exceed 1.2% in 2021.

A credit rating study shows that global public debt rose by tens of thousands of billions of dollars last year and reached $ 78 trillion at the end of 2020, 94% of global GDP.

Analysts at Fitch Ratings in London expect a similar increase this year as well, with global public debt reaching $ 88 trillion in 2021 and growing at a slower pace next year to the $ 95 trillion the company expects.

Under this scenario, the $ 27 trillion increase in debt over three years is unprecedented in face value, but as a percentage, that growth has actually occurred in three-year periods since the early 2000s, according to a study by Fitch. In London on Friday. a night.

The company

It expects strong global economic growth of 6.1 percent for 2021 as a whole, but at the same time it expects global government debt to continue to rise in nominal terms and GDP.

This is also in line with the dynamics of past economic cycles and the experience of global crises and the eurozone crisis a decade ago, as fiscal consolidation tends to follow true economic recovery with delay, according to Fitch Ratings.

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However, the credit rating agency also draws attention to the fact that, given the current level of government debt, any slight increase in the effective interest rate would impose a significant burden on the budget.

Fitch Ratings said it expects interest-bearing liabilities for governments in advanced economies to reach $ 948 billion in 2022, at average annual exchange rates, with an assumed effective interest rate of 1.4 percent.

However, according to the company, if the effective interest rate is not 1.4 percent but – like 2019 – 1.8 percent next year, the obligation to pay interest on government debt to advanced economies will rise 27 percent to $ 1,200 billion.

This means that every 100 basis point increase in the effective interest rate will raise the sovereign interest payment obligations of advanced economies by $ 66.6 billion next year, according to a study by Fitch. The company concludes from all this that

Reducing the debt stock will also require global financial adjustments in the coming years, as there are risks in relying solely on the sustainability of low interest rates.

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