The World Bank warned of the risk of a fresh global debt crisis after highlighting the issue of biggest build-up in borrowing in the past 50 years.
British newpaper Guardian reported that In its half-yearly Global Economic Prospects (GEP), said of the four waves of debt accumulation since the 1970s.
The latest the largest, fastest and most broad-based.
The World Bank said there could still be a financial crisis even though historically low interest rates making debts more manageable.
“Low global interest rates provide only a precarious protection against financial crises,” said Ayhan Kose, a World Bank official.
“The history of past waves of debt accumulation shows that these waves tend to have unhappy endings.”
“In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.”
Total emerging and developing economy debt reached almost 170% of gross domestic product in 2018 – or $55tn.
It increase of 54 percentage points of GDP since 2010.
China accounted for the bulk of the increase – in part due to its size – but the build-up broad-based, included other big emerging economies such as Brazil.
The World Bank said financial turmoil in emerging and developing economies one of the threats to its forecast of a slight strengthening of global growth this year, from 2.4% to 2.5%.
In about 80% of emerging and developing economies total debt higher in 2018 than in 2010 and the World Bank said they had been “navigating dangerous waters” because the current wave of borrowing had coincided with a decade of repeated growth disappointments.
Heavily indebted countries were now confronted by weaker growth prospects in a fragile global economy.
The GEP said debt rising among emerging countries, in contrast with previous episodes – such as the 1980s Latin American debt crisis – when the debt build-up was region specific.
More than a third of emerging and developing economies had experienced an increase in debt of at least 20 percentage points of GDP.
In addition, debt accumulation in both the public and private sectors, which contrasted with past waves when the build-up either by the government or private firms.
The World Bank said countries should seek to reduce the likelihood of crises and lessen their impact should they materialize.
Through building resilient monetary and fiscal frameworks, instituting robust supervisory and regulatory regimes, and following transparent debt management practices.
“However, high debt carries significant risks for emerging and developing economies, as it makes them more vulnerable to external shocks.
The rollover of existing debt can become increasingly difficult during periods of financial stress, potentially leading to a crisis,” it said.