Governments issued more debt than ever in the past month

The economic impact of the coronavirus pandemic prompted governments to issue more debt than ever in April, according to data provided by the Institute of International Finance.

The Covid-19 epidemic has forced countries to close their doors, with many governments imposing draconian restrictions on the daily lives of billions of people.

To date, containment measures have been implemented in 187 countries or territories in an attempt to slow the spread of the virus. The restrictions are expected cause the worst economic shock since the Great Depression of the 1930s.

He forced world leaders to swiftly deploy emergency financial measures and put in place aggressive stimulus packages in a bid to avert a devastating economic collapse.

“An increase in debt is inevitable. It is going to happen – these are stressful times, so there is no reason to wonder why they are borrowing,” Emre Tiftik, debt specialist at the Institute of International Finance. .

The IIR’s Global Debt Monitor found that global general debt issuance (bonds and loans) hit a record $ 2.6 trillion in April, up from $ 2.1 trillion in March.

To put this in context, Tiftik said the global debt issuance figures were more than twice the historical norms. He argued that this reflects the extraordinary scale of the accumulation of global debt as governments scramble to offset the economic impact of an unprecedented global health crisis.

The U.S. Federal Reserve Building is located in Washington, DC, the United States, Wednesday, June 24, 2009.

Brendan Smialowski | Bloomberg | Getty Images

It’s “scary but, again, it has to be done, so we’re trying to fix the liquidity issue,” Tiftik said.

The US government turned out to have accounted for $ 1.4 trillion of the world’s total general debt issuance in April and $ 1.2 trillion in March. The world’s largest economy has by far embarked on the biggest bailout of any country.

“Keep receipts”

The International Monetary Fund has said that a rapid increase in global public debt could present risks once the threat of the pandemic subsides.

In a report published on April 15, the Fund noted: “In an emergency, the implication for policy makers is to do whatever it takes, but be sure to keep receipts.”

At the time, global authorities had already taken fiscal measures amounting to around $ 8 trillion to contain the pandemic and limit its damage to the economy.

The pandemic and the associated “Grand Lockdown” have resulted in an increase in debt beyond those recorded during the global financial crisis, the Fund said, with public debt ratios likely to stabilize at more recent levels. – higher – as the pandemic abates.

Hanging signal with a message in Spanish that reads “protect your mouth with a mask” in the empty landscape of the Buenos Aires Obelisk during the government-ordered lockdown on May 1, 2020 in Buenos Aires, Argentina.

Ricardo Ceppi | Getty Images

Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CNBC by telephone that the relatively small number of voices complaining about the dangers of rising public debt “completely missed the point.”

“Public debt is a second-rate issue, maybe even a third-rate issue now given the havoc the virus has taken on the global economy,” he said.

“The main objective is to limit or improve the damage, we cannot prevent it, for sure, but to try to use fiscal policy to prevent the economy from being a wasteland when the virus will be defeated. “

“It’s not really a choice,” Shepherdson continued. “You could wear a hair shirt and say, ‘We’re not going to spend the money because we want to protect future generations.’ But, the next generation will have nothing to inherit because the economy will have been completely destroyed – and that cannot be in anyone’s interest. “

“Who will benefit from this additional debt? “

At the start of the year, the World Bank had warned on the heightened risk of a new global debt crisis, arguing that the build-up in global borrowing since 2010 has been “the largest, fastest and most widespread increase” since the 1970s.

The group had urged governments and central banks to recognize that historically low interest rates may not be enough to offset another widespread financial collapse.

The coronavirus crisis and historically large budget spending programs have since prompted some to warn that developed economies could find themselves on the brink of a medium-term debt crisis.

“We can save the day by borrowing money, but the problem is, where are we going to use that money? Who will benefit from this additional debt? Says Tiftik of IIR.

A man wearing a surgical mask works on his computer on Broadway Avenue as New Yorkers practice “social distancing” due to the COVID-19 pandemic on April 12, 2020 in New York City, United States.

Roy Rochlin | Getty Images

“Right now we’re trying to stop the bleeding, but now we’re starting to focus on healing. So how are we going to cure it so that it’s much better for everyone?”

When asked if the coronavirus outbreak could turn out to be the trigger for another global debt crisis, Tiftik replied, “Everyone is doing everything they can to make sure this is not not the case. “

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