STORY: Higher interest rates "important driver" of global debt growth: IMF fiscal chief
DATELINE: Oct. 14, 2023
LENGTH: 0:03:04
LOCATION: Washington D.C.
CATEGORY: ECONOMY

SHOTLIST:
1. SOUNDBITE (English): VITOR GASPAR, Director of IMF's fiscal affairs department

STORYLINE:

An International Monetary Fund (IMF) senior official has said that with global public debt projected to grow faster, higher interest rates have been pushing up borrowing costs, becoming an important driver of public debt dynamics.

SOUNDBITE 1 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"Global public debt went up quite a lot in the year of the pandemic 2020. Then given very strong catch-up growth from the contraction in the pandemic plus inflation surprises, it came sharply down in 2021 and 2022. But as you said, public debt ratios are now higher and they're projected to grow faster than under pre-pandemic projections."

According to the newly released IMF's Fiscal Monitor, total debt liabilities of governments, non-financial corporations and households in 2022 stood at 235 trillion U.S. dollars, or 238 percent of GDP.

SOUNDBITE 2 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"Borrowing costs are increasing for all country groups, and that has to do with rising public debts in many countries, plus increases in interest rates in almost all countries."

Gaspar noted that for advanced economies, interest expenditures on the budget are now 2.4 percent of GDP, compared with 2.1 percent in 2019. The trend is about the same for emerging markets from 2.1 percent of GDP in 2019 to 2.5 percent now in 2023.

SOUNDBITE 3 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"But perhaps more importantly, interest expenses on budget lag developments in market interest rates. It takes time for market interest rates to be reflected on effective interest rates for the budget."

Although debt vulnerabilities and risks remain elevated, and fiscal restraint is a much-needed ingredient in the policy mix in many corners, the IMF's assessment is that the risk of a "systemic" wave of sovereign debt defaults remains low.

SOUNDBITE 4 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"This country group is made of relatively small and relatively poor countries. And therefore, these high debt risks concentrated in this group of countries do not meet the requirements for a systemic sovereign debt crisis."

The Fiscal Monitor looks at the fiscal implications from the green transition. It argues that it is necessary to rely on a combination of policy instruments, including carbon pricing, complemented by that aimed at correcting remaining market failures, as well as fiscal support for the vulnerable.

SOUNDBITE 5 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"Global warming, climate change, is driven by the concentration of greenhouse gases in the atmosphere, and it doesn't matter where the greenhouse gases come from. This is what it means to say that this is a global problem. A global worldwide problem is best solved in a global cooperative way."

The IMF official praised China's progress towards a green transition.

SOUNDBITE 6 (English): VITOR GASPAR, Director of IMF's fiscal affairs department
"In China, the progress towards the green transition has been impressive in some areas. And if you allow me, one of the most impressive aspects has been innovation. The transition to an innovation-based economy is likely to be a dominant characteristic of the new growth model for China. China is taking a worldwide lead in the area of solar technology. In electric vehicles, and in particular, in battery technology, it does seem that China right now is defining the technological frontier at the world level."

Xinhua News Agency correspondents reporting from Washington D.C.
(XHTV)