Building Resilience: Safeguarding against a repeat of the 2009 debt

Global debt has skyrocketed by $45 trillion from pre-COVID-19 levels
Building Resilience: Safeguarding against a repeat of the 2009 debt
Joe Chidiac, CEO of JC Media Group

The alarming statistics recently released by the Institute of International Finance have captured my attention, shedding light on the alarming surge in global debt accumulation during the first quarter of this year.

“These figures not only serve as a warning of the imminent crisis but also add to the collection of crises that have severely disrupted our lives and economies,” said Joe Chidiac, CEO of JC Media Group.

According to the Institute’s data, global debt has skyrocketed by $45 trillion from pre-COVID-19 levels, reaching an unprecedented total of $305 trillion. Of this staggering amount, one-third has been allocated to emerging markets.

The underlying concern stems from the fact that heavily indebted nations, driven to borrow from financial markets due to their inability to service existing debts, may encounter significant challenges in breaking free from the vicious cycle of debt. Their relentless efforts to overcome this predicament may face obstacles, particularly in light of persistently high-interest rates that impede economic recovery. Consequently, the risk of default looms larger, posing a threat to economic stability and impeding progress toward achieving sustainable development goals.

Read: The Gulf’s future outlook

In the private sector, the recent upheaval in the banking industry has expedited the rise of problematic corporate debt. Stricter credit conditions imposed by banks have presented challenges for companies burdened with substantial debt and limited profitability. Consequently, these companies may struggle to secure debt refinancing, potentially leading them to resort to bankruptcy as a last resort.

Within the Arab region, it is evident that the situation varies across different countries. Oil-importing nations face mounting risks due to the expansion of their debt portfolios and the challenges of financing them at reasonable costs given the prevailing interest rates. On the other hand, oil-producing countries have taken a gradual approach to addressing this issue, prioritizing the diversification of their economies. This diversification effort has played a crucial role in bolstering non-oil revenues and improving their overall financial standing.

Recognizing the gravity of the debt issue, global financial institutions have elevated their concerns to a critical position on their policy agenda, convening extensive meetings to address the matter (which took center stage during the spring meetings).

It is expected that the challenges confronting the global economy will require decisive measures from policymakers to assist countries in managing their debt burdens.

“It is crucial not to postpone addressing this problem to a stage where finding a solution becomes increasingly complex. We vividly recall the far-reaching repercussions of the prolonged European debt crisis that originated in 2009, causing fragmentation across numerous nations,” concluded Chidiac.

For more penned Op-Eds by Joe Chidiac, click here.