INTEREST RATES AND DEBT

After being in an environment of low interest rate since the GFC , global debt has now exploded to unimaginable levels.

This is now causing refinancing problems as debt now needs to be rolled over albeit at a much higher level. This situation is causing several economies to climb a wall of worry by refinancing at a higher rate , in particular emerging and frontier markets.

As developed markets continue to fight inflation by keeping rates higher, growth is getting slower and hurting economies and hurting other sectors of the economy which are sensitive to interest rates. i.e. commercial real estate .

This further leads to slower growth and government cannot collect enough taxes leading to a vicious cycle.

This situation will continue to create a huge gap between developed economies and emerging and frontier economies, further leading to the fragmentation of the world .

Covid-19 accelerated the need to borrow more as economies were on lock down. But now we seem to face the same fate as economies borrow more to refinance the debt they have accumulated . The chart below is American based but I think it is a template of many economies the world over.

Non politized intervention will need to be acted upon as continued refinancing of debt at higher rate leaving little to nothing for development ,will definitely lead to further fragmentation of the world economies, the manifestation of which is BRICS countries which seem intent on weaponizing their economic advantages.