FAQ: WHAT ARE THE REASONS FOR THE RISE OF GLOBAL DEBT?
Current Affairs for 24th September, 2023
FAQ: WHAT ARE THE REASONS FOR THE RISE OF GLOBAL DEBT?
Global debt refers to the borrowings of governments as well as private businesses and individuals.
Governments borrow to fund various expenditures or to pay interest on existing borrowings. The private sectors borrow predominantly to make investments.
Both global debt in nominal terms and global debt as a share of GDP has been rising. The rise came halt during pandemic, only to rise again, with it reaching an all-time high by end of June 2023.
Most of the rise in global debt in the first half of the year has come from advanced economies, the U.S., U.K., Japan, France. Among emerging markets, China, India and Brazil have seen the most growth in debt.
The highest hike of $10 trillion has happened amidst rising interest rates. However, it is not a cause for concern since a rise in the total amount of savings can cause a rise in debt since the increased savings are channeled into investments.
Interestingly though, there has been a simultaneous drop in global debt as a share of GDP, owning to the rise in inflation.
Inflating of debt- refers to the phenomenon wherein the central bank of a country either directly or indirectly uses freshly created currency to effectively pay off outstanding government debt by, for ex. purchasing government bonds in the market.