Governments face a dangerous spike in borrowing costs in the coming years because rates charged are being kept artificially low while crisis measures are in place, the Organisation for Economic Co-operation and Development (OECD) has warned.
The Paris-based think-tank said as crisis measures are unwound a combination of high debt levels and rising interest rates could prompt a damaging "snowball effect".
Borrowing costs in some countries have remained low during the crisis because of monetary stimulus and the treatment of certain sovereign bonds as safe-haven assets during a time of crisis.
"While interest rates on government debt remain relatively low in many countries, debt levels in the wake of the crisis are significantly higher, implying latent upward pressure on borrowing costs," the OECD said.
Countries where debt is high, and borrowing costs are likely to rise in response to more debt, should move earlier to bring debt down with spending cuts and tax rises to counter the snowball effect, it said.
"Even moderate delays may incur costs with the development of particularly adverse debt dynamics," the report on global fiscal consolidation said.
During the crisis low interest rates have reduced debt servicing costs, preventing debt from rising to even higher levels.Interest payments amounted to about 2.5pc of GDP on average in OECD member countries in 2007, but that could rise to almost 4pc in 2026 according to the Organisation.
"In the absence of corrective action, higher interest rates could lead to substantial increased in debt, particularly in high debt countries such as Japan and Greece but also for those countries running large structural deficits such as the UK, Ireland, New Zealand and the US."
The OECD said that countries "seduced" into loose fiscal policy in the good times must bring down their deficits to 50pc of gross domestic product (GDP) by mid-century, to provide a safety margin against future crises.
Debt rose to above 100pc of GDP in some economies before and during the financial crisis, including in Japan, Italy, Greece and Ireland. In Japan, debt exceeds 200pc of GDP.
The think-tank warned that the challenge would be huge, not least because of the drain on resources posed by ageing populations and the scars left by the financial crisis, and said that further spending cuts and tax rises would be needed.
"In many countries, just stabilising debt, let alone bringing it down to a sustainable level, will be a major challenge," the OECD said.
telegraph.co.uk
The Paris-based think-tank said as crisis measures are unwound a combination of high debt levels and rising interest rates could prompt a damaging "snowball effect".
Borrowing costs in some countries have remained low during the crisis because of monetary stimulus and the treatment of certain sovereign bonds as safe-haven assets during a time of crisis.
"While interest rates on government debt remain relatively low in many countries, debt levels in the wake of the crisis are significantly higher, implying latent upward pressure on borrowing costs," the OECD said.
Countries where debt is high, and borrowing costs are likely to rise in response to more debt, should move earlier to bring debt down with spending cuts and tax rises to counter the snowball effect, it said.
"Even moderate delays may incur costs with the development of particularly adverse debt dynamics," the report on global fiscal consolidation said.
During the crisis low interest rates have reduced debt servicing costs, preventing debt from rising to even higher levels.Interest payments amounted to about 2.5pc of GDP on average in OECD member countries in 2007, but that could rise to almost 4pc in 2026 according to the Organisation.
"In the absence of corrective action, higher interest rates could lead to substantial increased in debt, particularly in high debt countries such as Japan and Greece but also for those countries running large structural deficits such as the UK, Ireland, New Zealand and the US."
The OECD said that countries "seduced" into loose fiscal policy in the good times must bring down their deficits to 50pc of gross domestic product (GDP) by mid-century, to provide a safety margin against future crises.
Debt rose to above 100pc of GDP in some economies before and during the financial crisis, including in Japan, Italy, Greece and Ireland. In Japan, debt exceeds 200pc of GDP.
The think-tank warned that the challenge would be huge, not least because of the drain on resources posed by ageing populations and the scars left by the financial crisis, and said that further spending cuts and tax rises would be needed.
"In many countries, just stabilising debt, let alone bringing it down to a sustainable level, will be a major challenge," the OECD said.
telegraph.co.uk
No comments:
Post a Comment