As the United States Federal Reserve is raising interest rates faster than initially anticipated, global debt is becoming a bigger concern according to the World Bank. These rising interest rates are putting stress particularly on emerging markets and developing economies. World indebtedness stood at 94% of world GDP (2015 data), while private debt surged to an all-time high at 129% of world GDP (2016 data) according to the World Bank. If this increasing indebtedness seemed sustainable in a context of low borrowing costs, rising interest rates will increase debt burden at short-term. Indeed, as Kristalina Georgieva, chief executive officer of the World Bank, warned lastly: “after a decade of low interest rates, the corporate and public debt in many places has ballooned to a staggering $164 trillion”. Then, “with interest rates going up, the attention on debt sustainability has to be stronger”. She added: “we don’t see many countries taking advantage of this period of strong economic growth to carry forward structural reforms,” she said. “Our advice to countries is, do not wait. Good times may not last — they usually do not last forever”.
Thomas Lorans, Economist – Sources: Beyond Ratings, World Bank