RBI Governor Warns of Global Debt Crisis: Calls for International Cooperation

RBI Governor Shaktikanta Das cautioned about escalating global debt, now at USD 315 trillion, during the 'Future of Finance Forum 2024' in Singapore. He highlighted risks particularly for emerging market economies and stressed the need for multilateral cooperation to tackle financial instability and promote sustainable growth.

The Reserve Bank of India Governor, Shaktikanta Das, has issued a stark warning over the escalating global debt, which has surged to a staggering USD 315 trillion, equivalent to 333 percent of the global GDP, projected for 2024. Speaking at the 'Future of Finance Forum 2024' in Singapore, Das emphasized that this unprecedented debt level poses significant risks, especially for emerging market economies (EMEs) and low to middle-income countries, which are increasingly susceptible to financial instability.

'At these levels, the debt overhang poses significant spillover risks to EMEs. In particular, low-income and some middle-income countries are very vulnerable. The coexistence of high levels of debt and elevated interest rates can feed a vicious cycle of financial instability through the impairment of government and private-sector balance sheets,' Das stated. He noted that rising fiscal deficits, now higher than pre-pandemic levels, further complicate the current fiscal landscape. With 88 economies entering election cycles in 2024, the scope for fiscal consolidation appears limited, accentuating the importance of effective debt management to avoid worsening financial risks.

'There also appears to be little scope for improvements in fiscal aggregates, given the fact that 2024 - the Great Election Year - is seeing 88 economies going into election cycles,' Das said. He also highlighted that ongoing geopolitical tensions and supply chain disruptions have led to increased risk aversion among investors, exacerbating cross-border trade restrictions. This environment of uncertainty demands prudent monetary policy management by central banks and proactive supply-side measures by governments to mitigate potential fallout.

Das called for a collective effort to address these challenges, advocating for strengthened multilateral development banks (MDBs) to tackle shared global issues. He underscored the importance of international cooperation in achieving sustainable economic growth and financial stability, urging nations to work towards a unified future for all.

(With inputs from agencies.)