The World Economic Forum (WEF) Global Risks Report, traditionally published ahead of the gathering of global political and business leaders in Davos, is not a cosy bedtime read at the best of times.
This year’s tome is no exception, highlighting the cost-of-living crisis, rise of geoeconomic warfare, erosion of social cohesion among today’s glaring global problems. That’s not to mention the report’s warning that the trajectory of greenhouse gas emissions, current at record levels, make it “very unlikely” that ambitions to limit global warming to 1.5 degrees – as the existential risk of climate change, rightly, looms large throughout the almost 100-page publication.
Meanwhile, with government debt in advanced economies having jumped from 77 per cent of gross domestic product (GDP) in 2008 to 112 per cent last year, while the ratio for emerging and development economies almost doubled to 65 per cent, the report said the threat of a fresh sovereign debt crisis is brewing.
“Governments have leveraged cheap money to invest in future growth and help stabilise distressed financial systems, providing massive fiscal support during the pandemic and to shield households and businesses from the current cost-of-living crisis,” it said. “However, high levels of debt may not be sustainable under tighter economic conditions.”
Rising interest rates, a stronger US dollar against many currencies and a growing aversion across financial markets to risk mean that the risks will remain heightened for years, according to the report, which highlighted that countries like Argentina, Egypt, Ghana, Kenya, Tunisia, Pakistan and Turkey are among some of the larger emerging markets exhibiting risks of default.
“A sovereign debt default in a systemically important economy could result in systemic proliferation,” it said, “with a devastating impact on a global scale.”
