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Raghuram Rajan Warns: Is Global Debt a Ticking Time Bomb?

2024-11-20 08:47:09.692000

In a recent statement, Raghuram Rajan, former chief economist of the International Monetary Fund (IMF), raised alarms about the escalating levels of global public debt, particularly in the United States. He emphasized that the rising debt threatens financial resilience amid ongoing global crises and called for urgent action to reduce debt levels to prepare for future emergencies. Rajan's concerns come as the IMF projects that global public debt will reach $100 trillion by the end of 2024, amounting to 93% of global GDP [28f6092b].

As of 2023, Malaysia's government debt reached RM1.173 trillion, reflecting an increase of RM92.918 billion (8.6%) from the previous year. This figure represents 65.4% of the country's GDP, with RM1.143 trillion sourced from domestic loans and RM29.851 billion from foreign loans. Notably, over 66% of federal debt is set to mature within the next decade, raising concerns about the sustainability of this debt load [42c410c1].

In comparison, the United States has a debt-to-GDP ratio of 129%, while Japan's stands at a staggering 217%. Although Malaysia's debt levels are lower than those of these major economies, the government recognizes the need for careful management to prevent future fiscal crises [42c410c1].

Rajan has highlighted the risks of being unprepared for crises due to high debt levels, stressing the importance of reducing debt to create financial buffers and enhance international cooperation [28f6092b]. The Malaysian government has set an ambitious goal to reduce its debt to 60% of GDP by 2030. To achieve this, it plans to decrease the fiscal deficit from 5.0% in 2023 to 4.3% in 2024. The introduction of the Public Finance and Fiscal Responsibility Act 2023 aims to enhance debt management and ensure that borrowing is used effectively for growth-generating projects [42c410c1].

Despite these measures, there are growing concerns about future generations potentially bearing the financial burden of current debt levels. Analysts emphasize the importance of utilizing debt wisely to foster economic growth, which is crucial for maintaining the nation's financial health [42c410c1].

In the broader context of global debt, the IMF has warned that public debt servicing costs are expected to rise by 10% for developing countries in 2024, exacerbating fiscal pressures [f4186bf4]. The IMF's Fiscal Monitor Report indicates that interest payments on this debt are consuming an increasing share of government revenue, raising concerns about fiscal sustainability worldwide. The report warns that current fiscal tightening efforts are deemed insufficient, and debt projections often underestimate actual outcomes [af1e6557].

As Malaysia navigates its own fiscal challenges, it must also consider the global economic landscape, where rising inflation and fiscal pressures are prevalent. The implications of high national debt are profound, correlating with low economic growth in many countries, including Japan and Greece, which have debts exceeding 200% of their GDP [5c4f83fc].

In conclusion, while Malaysia's debt levels are currently manageable compared to some global counterparts, the government must remain vigilant and proactive in its fiscal policies to ensure long-term economic stability and prevent future generations from facing undue financial burdens. Rajan's call for multilateral reforms and new trade avenues underscores the need for a coordinated global response to the rising tide of debt [28f6092b].

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