Curb your debts to prepare for the next pandemic, Raghuram Rajan tells US
Speaking to reporters in Rome, the one-time chief economist of the International Monetary Fund warned that countries that keep swelling existing mountains of borrowings leave themselves exposed for when the next emergency hits them.
“We had the global financial crisis and the pandemic,” he said on Tuesday. “People say pandemics are going to be more regular over the next century, so we can’t be satisfied with building up debt.”
Rajan said his warning is apt for the US, whose debt trajectory will keep increasing steadily, according to IMF forecasts released last month. Donald Trump is currently weighing whom to appoint to manage that pile of borrowings for when he takes over the White House next year.
“I don’t think we should be satisfied with this level of debt, it should be a vulnerability,” said Rajan, who is a professor of finance at the University of Chicago Booth School of Business. “This certainly is a message for the United States.”
Global public debt is set to reach $100 trillion, or 93% of global gross domestic product, by the end of this year, driven by the US and China, according to the IMF. While slowing inflation and falling interest rates offer governments a window to get their fiscal houses in order, the fund observed that there isn’t enough urgency to do so.Rajan said debt must be reduced to give countries a buffer for times of need, and that such dangers should not be underestimated. He added that high debt levels also make it difficult for countries to aid one another, which is a further vulnerability for the world.
He spoke on the sidelines of the annual Bancor prize award in Rome, where he gave a speech on the need to protect the future against a fragmenting world. Among solutions Rajan proposes reforming multilateral institutions, opening new areas of trade like services trade and climate action among the willing.
