Wednesday’s report by the International Monetary Fund stressed the risks of record global borrowing level, pointing to China and the United States as the biggest culprits of taking on too much debt. The growing deficits put the entire world economy as well as individual countries at risk of collapse and unable to deal with financial vulnerabilities or setbacks. Experts point to December’s US tax bill as a large contributor to the debt. The tax cuts will force deficit spending to over $1 trillion over the next three years, boosting US debt well over 100 percent by the year 2023. These staggering numbers account for the US status as being the only economically advanced country in the world not expected to see declining debt-to-GDP levels over the next five years.
As another guilty party, China is responsible for bringing total world debt levels to a record $164 trillion by 2016. This staggering number explains 43 percent of the global rise in debt since 2007. China is also seeing increasing borrowing by their local governments, with the debt in this sector expected to reach 90 percent of the country’s GDP by 2023. Although Chinese financial officials are making efforts to contain the spiralling debt, there still remains a cloud of uncertainty over whether the efforts will be successful in reversing the deficit.
Increasing debt levels leave countries vulnerable to the whims of investors and erratic stock markets. These debts can also hinder growth and development in at-risk countries.