The IMF thinks we have too much debt

Global policy makers need to guard against a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies, according to the IMF’s top fiscal watchdog.

Most countries are on a higher debt path than they were a year ago, the International Monetary Fund said in its semi-annual Fiscal Monitor report released Wednesday. Fiscal deficits in 2015-2016 in emerging economies are projected to exceed levels during the global financial crisis, as countries struggle with low oil prices, cooling investor sentiment and intensifying geopolitical tensions.

The warning on countries’ debt reinforces the fund’s message in two other reports this week that the world risks slipping to stagnation without strong action by policy makers, who are gathering in Washington for spring meetings of the IMF and World Bank. If gross domestic product growth in advanced economies slides further, that would raise public and private debt levels as a proportion of output, said Vitor Gaspar, head of the IMF’s fiscal-affairs department.

“In such circumstances you can imagine that households, firms, and governments will be tempted to cut further expenditures,” Gaspar said in an interview. “That puts further downside pressure on nominal GDP growth, and that would be a spiral that one must avoid.”

Debt is growing especially fast among oil producers, whose budget plans have been thrown into disarray by the collapse in crude prices. In the Middle East and North Africa, cumulative deficits are expected to widen by $2 trillion over the next five years, relative to 2004-2008, when oil prices peaked, according to the IMF.

And, reading between the lines what does the IMF recommend? More debt!