{"id":37406,"date":"2023-09-24T06:47:07","date_gmt":"2023-09-24T01:17:07","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=37406"},"modified":"2025-04-22T13:55:52","modified_gmt":"2025-04-22T08:25:52","slug":"rise-in-global-debt","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rise-in-global-debt\/","title":{"rendered":"Reasons for rise in global debt"},"content":{"rendered":"<h3><strong>What\u2019s in Today\u2019s Article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in News?<\/strong><\/li>\n<li><strong>What is Global Debt?<\/strong><\/li>\n<li><strong>Why is Global Debt Rising?<\/strong><\/li>\n<li><strong>Is the Rising Global Debt a Cause for Worry?<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why in News?<\/strong><\/h2>\n<ul>\n<li>According to the Institute of International Finance (IIF), global debt rose to an all-time high of $307 trillion in the 2nd quarter (April-June 2023), rising by about $100 trillion over the last decade.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What is Global Debt?<\/strong><\/h2>\n<ul>\n<li>Global debt refers to the <strong>borrowings of governments as well as private businesses<\/strong> and individuals.<\/li>\n<li><strong>Governments borrow to meet various expenditures<\/strong> that they are unable to meet through tax and other revenues.<\/li>\n<li>Governments may also borrow <strong>to pay interest on the money<\/strong> that they have already borrowed to fund past expenditures. <strong>The private sector borrows predominantly to make investments.<\/strong><\/li>\n<li>Both global debt in nominal terms and global debt as a share of GDP<strong> have been rising steadily over the decades.<\/strong><\/li>\n<li><strong>The rise came to a halt during the pandemic<\/strong> as economic activity turned sluggish and lending slowed down.<\/li>\n<li>But global debt levels have started to rise again in the last few quarters. During the first half of 2023, total global debt rose by $10 trillion.<\/li>\n<li><strong>Most (over 80%) of the rise in global debt<\/strong> in the first half of the year <strong>has come from advanced economies<\/strong> such as the US, UK, Japan, and France.<\/li>\n<li><strong>Among emerging market economies<\/strong>, China, India and Brazil have seen the most growth in debt.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why is Global Debt Rising?<\/strong><\/h2>\n<ul>\n<li><strong>This has happened amid rising interest rates<\/strong>, which was expected to adversely affect demand for loans.<\/li>\n<li>What is more interesting than rising debt levels is the<strong> drop in global debt as a share of GDP over seven consecutive quarters prior to 2023<\/strong>.\n<ul>\n<li><strong>The IIF attributes this to the rise in price inflation<\/strong>, which it claims has helped governments to inflate away the debts denominated in their local currencies.<\/li>\n<li><strong>Inflating away of debt refers<\/strong> to the phenomenon wherein the central bank of a country either directly or indirectly uses freshly created currency to effectively pay off outstanding government debt.<\/li>\n<li><strong>But the creation of fresh money causes prices to rise<\/strong>, thus imposing an <strong>indirect tax on the wider economy<\/strong> to pay the government\u2019s debt.<\/li>\n<\/ul>\n<\/li>\n<li>A further rise in debt levels over time is to be expected <strong>since the total money supply usually steadily rises<\/strong> each year in countries across the globe.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Is the Rising Global Debt a Cause for Worry?<\/strong><\/h2>\n<ul>\n<li>Rising global debt levels <strong>usually leads to concerns about the sustainability of such debt<\/strong>.\n<ul>\n<li>The IIF has warned that the international financial infrastructure is <strong>not equipped to handle unsustainable domestic debt levels<\/strong>.<\/li>\n<li>This is particularly so in the case of government debt which is prone to rise rapidly due to <strong>reckless borrowing by politicians to fund populist programmes<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li>When central banks raise interest rates, <strong>servicing outstanding debt becomes a challenge for governments with a heavy debt burden.<\/strong>\n<ul>\n<li><strong>Rising interest rates can increase pressure on governments <\/strong>and force them to either default outright or inflate away their debt.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Rapidly rising private debt levels<\/strong> also lead to worries among analysts about their sustainability.\n<ul>\n<li>This is because such a rise is linked to <strong>unsustainable booms<\/strong> that end in economic crises when such lending is not backed by genuine savings.<\/li>\n<li>The most recent example of the same was the <strong>2008 global financial crisis<\/strong>, which was immediately preceded by an economic boom fueled by the US Federal Reserve\u2019s easy credit policy.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What caused the 2008 global financial crisis?<\/strong><\/h3>\n<p>The catalysts for the global financial crisis were falling US house prices and a rising number of borrowers unable to repay their loans.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2) What was the impact of the 2008 global financial crisis on India?<\/strong><\/h3>\n<p>The global crisis affected India through three different ways: Financial markets, Trade flows, and Exchange rates. The immediate effects were: dropping stock prices, a net outflow of foreign capital, a large reduction in foreign reserves and a sharp tightening of domestic liquidity.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:<\/strong> <a href=\"https:\/\/www.thehindu.com\/business\/Economy\/what-are-the-reasons-for-rise-in-global-debt-explained\/article67339036.ece\" target=\"_blank\" rel=\"nofollow noopener\"><u>What are the reasons for rise in global debt?<\/u><\/a><br \/>\n\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Global debt, both in nominal terms and global debt as a share of GDP have been rising steadily over the decades amid rising interest rates<\/p>\n","protected":false},"author":5,"featured_media":37407,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-37406","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/37406","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=37406"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/37406\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/37407"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=37406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=37406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=37406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}