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The International Monetary Fund has warned that old debts owed to surplus economies still growing in the aftermath of the 2009 financial crisis could threaten the global economy.
In its latest World Economic Outlook report, the organization claimed that despite current account deficits being halved since 2006, it has not resulted in a surplus for the countries who have large borrowing tendencies, suggesting that the total amount of debt has increased. It said that, “Stock imbalances have not decreased – on the contrary, they have widened – mainly because of continued flow imbalances, coupled with low growth in several advanced economies.”
Based on IMF estimates, the US’ net foreign liabilities grew between 2006, when it was at 14% of its annual output, and 2013, when it was larger at 34%.The same could be said of Spain, who went from 70% of annual output to 103%, and Italy, who went from 24% to 36%, over the same period of time.
The growing liabilities was offset by Japan’s large increase in foreign assets, which grew to 62% of its gross domestic product (GDP) from an initial 41%. Germany expanded its foreign assets as well from 27% of GDP to 46%.
The IMF claimed that countries with sizable foreign liabilities are more prone to being significantly affected by shocks to the market, making it more difficult to roll over debts.
