BANK of Japan governor Taro Aso says there is a witnessed rapid debt build-up in some developing countries stemming from debts owed to non-traditional creditors and non-concessional borrowings.
In his speech to the 2018 annual meetings of the International Monetary Fund and World Bank Group in Bali, Indonesia, Aso also warned that trade conflicts aggravated market sentiment, increased financial vulnerabilities and discouraged investments.
“The last few years have witnessed rapid debt build-up in some developing countries stemming from debts owed to non-traditional creditors and non-concessional borrowings,” said Aso, who is one of the many IMF governors.
“Both borrowing countries and creditors, public and private, should work to enhance debt transparency and ensure debt sustainability. We expect the IMF and the World Bank to provide necessary capacity development support and encourage both borrowers and creditors to understand the importance of debt sustainability.”
He said as the global capital market conditions tightened, a reversal of capital flows into emerging market economies was occurring.
Aso said although the negative impacts had not spread throughout the global economy, “we should be more vigilant and move fast so that the international community can provide assistance when needed.”
He said trade tensions remained high.
“Inward-looking policies with protectionist measures would not benefit any country. It is critical to accelerate global economic growth through free, fair, and rules-based trade, and we should purse solutions through multilateral, rather than bilateral, frameworks to that end,” Aso said.
“To deal with these downside risks, the commitment to use monetary, fiscal, and structural policies both individually and collectively continues to carry significance. In order to prepare for the future while the economic conditions are still favorable, we should rebuild fiscal buffers as necessary to create room for investment in high quality infrastructure and human capitals, and to ensure the debt-to-GDP ratio to be on a sustainable path.”
Aso said Japan highly valued the IMF’s long-standing efforts to enhance its surveillance capability and to monitor the global economy, including providing countries in need with swift loans, and boost economic growth through capacity development.
He said Japan continued to expect the IMF’s contribution in analysing and addressing challenges that the global economy faced.
Aso said excessive global imbalances posed a risk to the global economy.
He said given that the current account balance of each country reflected its macroeconomic saving-investment balance, each country should carry out appropriate macroeconomic and structural policies to achieve a sustainable saving-investment balance, thereby endeavouring to help eliminate excessive global imbalances.
Meanwhile, Aso said rapid aging of population and decline in birthrates were observed not only in advanced countries but also in some emerging and developing countries.
He said by 2050, the world population over 60 years old is projected to reach two billion.
“Aging population and declining birthrate affect wide-ranging areas such as reduction in labour force, intergenerational equity, and financial inclusion. To provide a common basis for countries to discuss these issues, we expect the IMF to analyse the effects of population aging and declining birthrate on macro economy, fiscal conditions, and finance,” Aso said.
He said from the medium to long-term perspective, Japan’s biggest challenge was aging population with declining birthrate.
Aso said as Japan was in a dire fiscal situation with its central and local government debt level reaching twice as large as its GDP, restraining increases in social security expenditure was an unavoidable challenge.
“Against this background, we set out a new fiscal reform plan in June, aiming for fiscal consolidation, and setting the target of achieving primary surplus by financial year 2025. As the baby boomers will have turned 75 years old or above by 2025, social security spending is expected to surge,” said Aso. “We therefore, need to solidify the path to fiscal consolidation in time.”