WASHINGTON (Pakistan Point News / Sputnik - 24th June, 2023) Many countries around the world, including Western ones, are in a critical condition due to their high levels of public debt, IMF Executive Director for Russia Aleksei Mozhin told Sputnik.
"After COVID, there was a big recession in the economy; budget deficits increased and had to be financed by increasing public debt. Many countries found themselves in a critical situation in terms of public debt, including Western countries," Mozhin said.
Years of irresponsible budgetary and monetary policy, including pumping money into the economy to revive it, lie at the heart of the current debt crisis, he said.
Mohzin pointed out that the example of Japan shows it is possible to kick the can down the road to avoid default for a long time, but at the cost of the Japanese economy not growing for 30 years.
This is the case with other economies as well, the Italian economy has not grown for 20 years, he said.
"All these are consequences, first of all, of the skyrocketing level of public debt," Mozhin said.
Almost all European countries are now facing significant levels of debt, including Great Britain, France, Spain, Portugal, not to mention Greece and Italy, Mozhin noted, characterizing the situation as "simply awful."
At the same time, Mozhin said sick economies must experience pain to get better as there are no other ways to treat them. They must raise interest rates to reduce inflation but that kills economic growth and increases the cost of borrowing.
"If there is a huge public debt, it means that 'budget consolidation,' achieving budget surplus, is required. This requires either an increase in taxes in order to increase budget revenues or a reduction in budget expenditures. Both kill economic growth," Mozhin said.
The countries of the collective West cannot cope with these challenges because of the ruling populism there, he said.
"The very political system of these countries leads to the fact that they have a complete fixation on short-term indicators," Mozhin said. "Good growth and low unemployment must be achieved today at all costs, otherwise you may lose the upcoming elections. And elections are held there almost every year."
Mozhin noted that states that find themselves in a critical situation because of high debt are able to avoid defaulting by issuing new government bonds and forcing their own banks to accept the government debt.
"Europe will gradually turn into a region with an average standard of living. This is a tragedy, but I do not see the ability of the authorities to allow pain," Mozhin said.
