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Fiscal incontinence is going global and could pose a risk to financial stability


While the global economy is showing signs of strong growth, public debt levels in emerging markets are rising at an alarming rate.

As the world’s finance officials head to Washington this week for the IMF and World Bank spring meetings, they are likely to be in a rather buoyant mood. The global economy – in broad terms – shows signs of surprisingly strong growth, while inflationary pressures continue to fall, notwithstanding recent jitters about price pressures in the US.

But what is the true cost of this robust growth? One answer is the apparently endless rise in the level of public debt. 

The world has become familiar with the idea that US political system now has no mechanism to generate budget restraint: Republicans will cut taxes, Democrats will raise spending, and the result will be persistent fiscal incontinence. US budget deficits averaged 5.8 per cent of GDP in 2022 and 2023, and the Congressional Budget Office estimates they will average 5.3 per cent through 2030. US public debt, now close to 100 per cent of GDP, can only keep rising.

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