Why are we staring at a global debt problem yet again?

livemint.com:

Global public debt in 2023 reached historical highs that have put the world economy’s growth at risk. And International Monetary Fund (IMF) projections point to this burden growing much faster in the next five years than its pre-pandemic projections. This time, rising debt is a trend across the board.

The general government public debt-to-GDP ratios of the US and China, properly measured, now well exceed 120% of GDP. And G20 emerging-market countries’ public debt has doubled over the past decade. Nevertheless, the IMF’s assessment is that the risk of a “systemic" wave of debt defaults remains low.

But the outlook is grim. Debt has become a binding constraint for some governments that lack resources to meet essential payments and return to their inflation targets. Half of all low-income countries and up to a quarter of emerging markets are at high risk of debt distress.

If several larger emerging market and low-income countries are simultaneously confronted with shocks and cannot roll over their debts, we could face a new debt crisis. Importantly, global risks may emerge from US and Chinese policies that have deviated from paths of fiscal sustainability. The global supply of dollar-denominated assets effectively depends on US fiscal capacity.

This has come under pressure from the recent US debt ceiling crisis. We have seen frequent flash liquidity events, reflecting the erosion of US fiscal governance, and its debt rating downgrade, even as the dollar’s global reserve currency status has been questioned again. In China, “augmented" general government debt has doubled over the past decade, and its Achilles heel lies in local governments and state-owned enterprises (SOEs), and the proliferation of off-budget finance