On Sunday, the Bank for International Settlements (BIS) advised governments worldwide to reduce borrowing to mitigate significant threats to global financial stability and support efforts to control inflation.
In its annual World Economic Report, the Bank for International Settlements warned that rising levels of debt could expose governments to risks akin to the 2022 crisis in the United Kingdom. During that crisis, investors withdrew from government bonds, causing a surge in borrowing costs, currency depreciation, and sharp declines in capital markets.
BIS also noted that prior to the COVID-19 pandemic, prolonged near-zero interest rates masked the threats posed by high levels of debt and its continuous increase, keeping debt-servicing costs at historically low levels.
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Subsequently, due to financing for energy transition, geopolitical issues, and imminent burden of aging populations, government expenditure demands have continued to rise, leading to another increase in debt-servicing costs.
The bank emphasized the importance of proactive measures to prevent severe political turmoil.
Additionally, in its annual report, the Bank for International Settlements underscored that excessive government borrowing is stimulating the economy, making efforts to control inflation increasingly complex.
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