Raghuram Rajan Warns Of Growing Risks From High Public Debt In US

Speaking to reporters in Rome, Rajan, who also served as the chief economist of the International Monetary Fund, highlighted that countries must not let their debt levels swell unchecked

Raghuram Rajan's comments are particularly relevant to the US, where debt levels are projected to keep rising steadily, according to IMF forecasts released last month.

Source : PTI

Former Reserve Bank of India (RBI) governor Raghuram Rajan has issued a stern warning about the rising levels of public debt, particularly in the US and other major economies, cautioning that unchecked borrowing could leave nations vulnerable to future crises, including pandemics, as reported by Bloomberg.

Speaking to reporters in Rome, Rajan, who also served as the chief economist of the International Monetary Fund (IMF), highlighted that countries must not let their debt levels swell unchecked. He pointed out that the world is increasingly susceptible to emergencies like pandemics, making it essential for nations to reduce their debt burdens to prepare for future crises.

"We've seen the global financial crisis and the pandemic. People are now saying pandemics could become more regular in the coming century, so we can't be complacent about rising debt,” Rajan said on Tuesday.

A Strong Warning for the US

Rajan's comments are particularly relevant to the US, where debt levels are projected to keep rising steadily, according to IMF forecasts released last month. With former President Donald Trump preparing for a potential return to the White House next year, the challenge of managing the US's growing debt remains a key issue.

“I don’t think we should be satisfied with this level of debt; it should be seen as a vulnerability,” said Rajan, who now teaches finance at the University of Chicago Booth School of Business. He stressed that this issue is particularly pressing for the US, where debt levels have reached alarming heights.

Global Debt Crisis Looming

The IMF has warned that global public debt is set to hit $100 trillion, or 93 per cent of global GDP, by the end of this year. The US and China are major contributors to this debt buildup. While slowing inflation and falling interest rates offer governments an opportunity to stabilize their fiscal positions, the IMF has noted a lack of urgency in addressing the growing debt crisis.

Risks to Global Stability

Rajan highlighted the broader risks posed by high debt levels, arguing that countries with substantial borrowings are less able to assist one another in times of need, exacerbating global vulnerabilities. He stressed that reducing debt is crucial to create a buffer for future emergencies.

Speaking at the annual Bancor Prize award ceremony in Rome, Rajan also addressed broader global challenges, advocating for reforms to multilateral institutions and urging expanded trade in services and climate action among willing nations to protect the future from fragmentation and instability.

Rajan’s remarks serve as a stark reminder of the risks associated with unsustainable debt levels in an increasingly unpredictable world.