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World debt is a big problem because it means that countries are borrowing money from other countries. This can lead to problems if the country that borrows the money cannot pay it back.
It’s not good for the world economy because it can create a lot of instability, inflation as well as economic recessions.
Some economists believe that world debt is one of the biggest problems facing the world economy today. They think that it could lead to another financial crisis like the one that happened in 2008.
Understanding world debt
In simple terms, world debt is when one country owes money to another country.
Most world debts are in the form of government bonds. This is when a country sells a bond to another country. The bond has a value and the country that buys it agrees to pay back the money over time, with interest.
Other than government bonds, there are
- Public debt
- Household debt
- Commercial debt
Sometimes, countries also borrow money from international organizations like the World Bank or the International Monetary Fund (IMF).
The IMF and the World Bank are organizations that lend money to countries. They do this so that the country can pay for things like infrastructure projects or emergencies.
The IMF and the World Bank are different from each other. The IMF is focused on helping countries with their economies. The World Bank is focused on helping countries with poverty.
The current situation of world debt
In 2021, the world debt reached $300 trillion and it is still growing.
This is a big number and it is hard to wrap your head around it. To put it in perspective, $300 trillion is more than three times the size of the world economy.
Advanced economies such as the United States, Japan, and Germany make up the majority of this debt.
E emerging economies such as China, Brazil, and India are next, and lastly, low-income countries such as Nigeria, Pakistan, and Tanzania make up the rest.
According to the world bank, in 2020, developing countries issued a record-breaking $457 billion in bonds, fourteen percent more than the year before. China alone made up almost half of this total 48% with $219 billion in new debt in 2020.
Countries that hold the most debt
- Japan ($9.087 trillion, 234.18% of its GDP)
- Greece ($381.72 billion, 193.30% of its GDP)
- Portugal ($285 billion, 127% of its GDP)
- Italy ($2.737 trillion, 152.60% of its GDP)
- Bhutan ($3.05 billion, 134.94% of its GDP)
- Cyprus ($25.86 billion, 104.9% of its GDP)
- Belgium ($536 billion, 112% of its GDP)
- USA ($30 trillion, 139.6% of its GDP)
- Spain ($1.4 trillion, 119% of its GDP)
- Singapore ($254 billion, 131% of its GDP)
Conclusion
World debt is not a small issue and can lead to many problems if not managed correctly. Countries need to be careful about how much they borrow and make sure that they can pay it back. World debt is constantly changing and growing. In 2021, it reached $300 trillion and it’s a big number that needs to be managed correctly so it doesn’t cause any global economic problems.
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Japan’s leaders are standing by to address any sharp moves in the yen as the currency remains in focus ahead of the central bank’s policy decision later Friday.
