The 35% increase in government debt held by banks between 2012 and 2023, reported by the World Bank (WB), highlights a worrying trend for global economic stability, especially in low-income and debt-ridden countries. This debt expansion indicates a higher level of financial vulnerability and may have serious implications for economic policy management in these countries.
For developing economies, the accumulation of debt in the hands of banking institutions can increase the risk of financial crises. Banks, by assuming large amounts of public debt, may face difficulties if governments fail to meet their payment obligations. This could generate a negative domino effect, affecting confidence in the financial system and access to credit.
In addition, the concentration of debt in banks can limit their ability to finance other economic sectors. Public debt overhang can reduce the availability of resources for lending to businesses and households, restricting economic growth and exacerbating problems of poverty and inequality.
Countries with high levels of bank-held debt need to implement more effective debt management strategies and seek international support. It is crucial to adopt policies that foster fiscal sustainability and promote a stable economic environment to avoid the risk of crises that could have global repercussions.