RBI Governor Warns of Global Debt Crisis: Calls for International Cooperation

New Delhi , 13 September , 2024 –In a recent address, Reserve Bank of India (RBI) Governor Shaktikanta Das issued a stark warning about the growing risk of a global debt crisis. Highlighting the rising debt levels in several countries, exacerbated by the prolonged impact of the COVID-19 pandemic and the ongoing geopolitical tensions, the Governor emphasized the need for coordinated international efforts to avert a financial catastrophe.

Das noted that many emerging and low-income nations are particularly vulnerable due to mounting sovereign debt and the tightening global financial conditions. He urged advanced economies, international financial institutions, and multilateral development banks to work together to develop strategies for debt relief and restructuring.

“The world is interconnected, and a crisis in one region can quickly spread globally. To prevent a financial contagion, nations must strengthen cooperation on debt management and policy frameworks,” he said.

The Governor also called for a balanced approach to fiscal policies, stressing the importance of maintaining growth while ensuring debt sustainability. He warned that unchecked debt levels could destabilize the global economy, potentially leading to higher inflation and volatility in financial markets. International collaboration, according to Das, will be key to mitigating these risks and ensuring a stable global economic recovery.

The Reserve Bank of India Governor, Shaktikanta Das, has issued a stark warning over the escalating global debt, which has surged to a staggering USD 315 trillion, equivalent to 333 percent of the global GDP, projected for 2024. Speaking at the ‘Future of Finance Forum 2024’ in Singapore, Das emphasized that this unprecedented debt level poses significant risks, especially for emerging market economies (EMEs) and low to middle-income countries, which are increasingly susceptible to financial instability.

‘At these levels, the debt overhang poses significant spillover risks to EMEs. In particular, low-income and some middle-income countries are very vulnerable. The coexistence of high levels of debt and elevated interest rates can feed a vicious cycle of financial instability through the impairment of government and private-sector balance sheets,’ Das stated. He noted that rising fiscal deficits, now higher than pre-pandemic levels, further complicate the current fiscal landscape. With 88 economies entering election cycles in 2024, the scope for fiscal consolidation appears limited, accentuating the importance of effective debt management to avoid worsening financial risks.

‘There also appears to be little scope for improvements in fiscal aggregates, given the fact that 2024 – the Great Election Year – is seeing 88 economies going into election cycles,’ Das said. He also highlighted that ongoing geopolitical tensions and supply chain disruptions have led to increased risk aversion among investors, exacerbating cross-border trade restrictions. This environment of uncertainty demands prudent monetary policy management by central banks and proactive supply-side measures by governments to mitigate potential fallout.

Das called for a collective effort to address these challenges, advocating for strengthened multilateral development banks (MDBs) to tackle shared global issues. He underscored the importance of international cooperation in achieving sustainable economic growth and financial stability, urging nations to work towards a unified future for all.