London
World leaders are converging on Davos this week to discuss global challenges, including two major wars, a shipping crisis, cyberattacks, and alarming climate evidence. However, translating ideas into action becomes challenging as governments grapple with an unprecedented $88.1 trillion in public debt, nearly equivalent to the world’s annual economic output.
The surge in public debt during the pandemic, coupled with anticipated record-breaking borrowing this year in several major economies, diminishes governments’ capacity to respond to financial crises, pandemics, or conflicts. The escalating costs of servicing this debt will further constrain efforts to address climate change and provide for aging populations, exacerbating the strain on public services already impacted by budget cuts.
More concerning is the potential scenario where growing debt burdens render governments unable to borrow further, jeopardizing their ability to fulfill existing obligations and fund essential services adequately. In such a situation, a government might be compelled to implement abrupt and painful spending cuts or tax hikes, warned Michael Saunders, a former member of the Bank of England’s monetary policy committee. This dilemma underscores the complex challenges governments face in managing burgeoning debt while addressing critical global issues.
