On Sunday, the Bank for International Settlements (BIS) recommended that governments reduce borrowing to mitigate significant threats to global financial stability and support efforts to control inflation.
In its annual World Economic Report, the Bank for International Settlements warned that escalating debt levels could expose governments to risks akin to the 2022 UK crisis. During this crisis, investor withdrawals from government bonds led to soaring borrowing costs, currency depreciation, and sharp declines in capital markets.
BIS also noted that before the COVID-19 pandemic, long periods of near-zero interest rates masked high levels of debt and the escalating threat of debt, keeping debt-servicing costs historically low.
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Subsequently, demands for government expenditure continue to rise due to financing energy transition, geopolitical issues, and imminent aging populations, causing debt-servicing costs to rise once again.
The bank emphasized that proactive measures to avoid severe political unrest are crucial. Additionally, the Bank for International Settlements underscored in its annual report that excessive government borrowing is stimulating the economy, complicating efforts to control inflation.
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