The Bank for International Settlements (BIS) has recently released its Annual Economic Report for 2024, which was published on June 30. The report emphasizes the substantial risks that are associated with the increasing levels of public debt in both advanced and emerging market economies. It highlights the fact that without implementing fiscal consolidation measures, the current trajectories of debt will continue to be unsustainable, thereby posing a threat to macroeconomic stability. As interest rates begin to rise, the need for refinancing and the costs associated with servicing the debt could potentially lead to financial strain, particularly if economic growth experiences a setback. The historical evidence further underscores the potential for high debt levels to undermine the credibility of fiscal policies and put pressure on monetary policies, resulting in inflationary pressures and volatility in exchange rates. During a press conference, Claudio Borrio, the head of the BIS economic department, stated, “There is a possibility that markets may question the sustainability of fiscal policies… We have learned from past experiences that situations that appear sustainable can suddenly become unsustainable.”
