2016-10-05
V. Vasiliauskas: highest indebtedness in history reached — additional risk factor underpinning world economy developments
Vitas Vasiliauskas, the Chairman of the Board of the Bank of Lithuania, who is currently participating in the International Monetary Fund (IMF) annual meetings in Washington, DC, warns that the record level of non-financial sector indebtedness may render an additional risk factor underpinning developments in the world economy and hindering economic growth.
‘Sovereign, corporate and household debt, which boosted after the financial crisis, has reached its historical peak level, while indebtedness curves of some countries continue their upward trajectory. In the wake of sluggish economic growth, this trend is a clear signal to take constructive actions’, said V. Vasiliauskas in commenting the results of the latest Global Financial Stability Report.
Participating in IMF discussions, the Chairman of the Bank of Lithuania highlighted that a deleverage process that is too abrupt, insufficiently balanced and not supported by other instruments would weigh on the fragile global economy. Hence, according to him, the debt burden must be alleviated, first and foremost, by supporting economic growth, to this effect also implementing tax and sovereign debt management instruments. ‘There is no single modus operandi, yet disciplined countries that have secured both a good position of their public finances and high market confidence, thus having sufficient room for fiscal manoeuvre, could apply fiscal incentives’, said V. Vasiliauskas.
He noted that the record-low level of indebtedness also signals the need for taking effective measures to strengthen the banking sector.
The latest IMF report shows that the global non-financial sector debt (sovereign, household and non-financial undertaking) reached its peak level in 2015 — USD 152 trillion, or 225 per cent of global GDP. Private sector indebtedness accounts for approximately two-thirds of this debt.