Singapore’s Senior Minister Tharman on rising global debt amid Covid

One of the biggest challenges that governments will face in the next decade is bringing down debt, a senior minister in Singapore said on Monday.

Governments around the world have increased spending to support their economies hit hard by the coronavirus pandemic. Some have to borrow more to do so — which is a “sensible economic strategy” when confronted with the current crisis and uncertainties, said Tharman Shanmugaratnam, Singapore’s senior minister and coordinating minister for social policies.

But “the big issue in the next decade is how to ensure that debts are sustainable,” said Tharman, a well-known economic and finance expert, at the opening day of the virtual Singapore Summit.

He added that the new high levels of debt that many countries are moving toward cannot continue without hurting growth. That’s because today’s economies — unlike those in the period after the Second World War — can no longer rely on rapid economic growth and inflation to bring down debt, he explained.

“Rapid growth is no longer possible, these are now aging societies, productivity growth is much lower than before,” said Tharman, who chaired the International Monetary and Financial Committee from 2011 to 2015. The IMFC is the International Monetary Fund’s policy steering body.

“And inflation is not going to be tolerated by older societies. They may be tolerated when societies are young and everyone’s incomes are going up, it’s not going to be tolerated now,” he added.

In addition, current ultra-low interest rates will at some point rise to more normal levels — which will raise the cost of debt financing, said the minister. So, governments must find a way to balance their budgets with growing their economies without simply expanding the deficit, he added.

However, very few advanced countries are addressing that issue, according to Tharman. He cited Germany and Italy as one of the few countries running a primary budget surplus.

“It’s a very serious issue. You’re going to need fiscal reforms, not simply cutting down on spending but quality spending and ways of raising revenue that don’t dent growth,” he said, adding that governments must incentivize more private investments to boost productivity growth and defy secular stagnation.