Whenever the world economy
faces financial crises, social
unrest or the boom-bust cycles of commodities, there is
characteristically a wave of sovereign defaults. It is no different this time too.
In the process of settling the dust from the great financial crisis, a new risk
has emerged—skyrocketing government debt around the world. The deep
global recession and massive fiscal pumping have put significant strain on the
fiscal deficits of the US, Europe, Japan and some emerging economies. Some
of them are facing the government debt to GDP ratio double-digit levels,
leading to sovereign risk pressures due to fear that the unsound fiscal
imbalances could prompt a crisis similar to the 1982 Mexican debt crisis. In the
past, some countries like Spain and Austria learnt their lessons, but countries
like Argentina are yet to learn.
Statistics indicate that sovereign debts have totaled more than $35
tn worldwide, with the debt-to-GDP ratio hitting a record high. Major
economies include the US, the UK, Germany and France facing record debt due to
large aggregates in their public debts. Meanwhile, credit rating agencies cut
the sovereign debt rating for Mexico, Greece, Portugal and Spain after
the Dubai government abruptly announced its plan to delay debt payments in
November 2009. Fitch Ratings assert that "the extraordinary sovereign
intervention and support for the financial sector, as well as fiscal stimulus
packages and the severity of the recession, have weakened high-grade sovereign
credit profiles, making 2010 a tough year for governments throughout the world."
|
