Unsustainable Increase in Government Debt Criticized by BIS (Bank for International Settlements)
World Governments Urged to Address escalating Public Debt Amidst Global Economic Uncertainty
A leading economist, Agustin Carstens, serving as the general manager of the Bank for International Settlements (BIS), has issued a warning to policy-makers worldwide concerning the unabated surge in public government debt. According to him, they face a narrow window of opportunity to rectify their fiscal situation before losing public trust in their financial commitments.
The BIS, often referred to as a "central bank for central banks," works to foster global monetary and financial stability through promoting cooperation among central banks and other financial authorities worldwide. Its concerns come following the latest figures released by the Office for National Statistics (ONS), revealing a challenging financial landscape for Chancellor Rachel Reeves.
April's borrowing figure stood at £20.2 billion, surpassing the economists' forecast of £18 billion. Meanwhile, tax receipts reached £62 billion, whereas government expenditure was provisionally set at £93.3 billion. This scenario puts the Chancellor's self-imposed rule, requiring day-to-day spending funding through tax receipts, under threat.
Public sector net debt (PSND) stood at 95.5 per cent of the nation's GDP at the end of April 2025, an increase from the 94.8 per cent figure recorded at the end of April 2024.
Reeves' decision to increase borrowing by almost £20 billion in her initial budget to fund infrastructure and housing projects initially stirred concerns in the market, with yields on government bonds jumping. Speaking at a Bank of Japan conference in Tokyo, Carsten highlighted the concerns regarding large deficits and escalating debt loads.
He suggested that governments had earlier been able to avoid confronting tough financial choices because of lower interest rates, allowing them to defer action. However, interest rates on government bonds worldwide have risen over the past five years, with the trend further intensifying since 2025.
For instance, the 40-year Japanese bond now yields nearly 3.7 per cent, rising a full percentage point since the beginning of April. On the other hand, the yield on the 10-year US Treasury has climbed to 4.6 per cent, while the yield on 10-year UK gilts has risen to almost 4.7 per cent.
Carstens emphasized the urgency for fiscal consolidation in many economies, advocating against mere 'muddling through' as the solution. He warned of potential public defaults that could destabilize the global financial system, particularly if central banks had to fund government deficits, ultimately resulting in rising inflation and significant exchange rate depreciations.
As the global tally of national debt surpasses $100 trillion, representing over 120% of the world's GDP, addressing escalating public government debt is essential to maintain economic stability worldwide.
- Economists and policy-makers need to prioritize tackling the surge in public government debt, as advised by Agustin Carstens from the Bank for International Settlements (BIS), given the adverse effects it could have on the global economy.
- The escalating public debt, in light of the recent increase in borrowing by Chancellor Rachel Reeves, raises concerns about the stability of business environments, including financial markets and banking systems, which could be impacted by rising inflation and exchange rate depreciations.
- In the face of escalating public debt, which currently exceeds $100 trillion worldwide, representing over 120% of the world's GDP, policy-makers are urged to pursue consolidation strategies, eschewing piecemeal approaches, to maintain economic stability and prevent potential public defaults from destabilizing the global financial system.
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