As you know, the week we ended was the "spring term" leg of the annual meetings held jointly by the International Monetary Fund (IMF) and the World Bank for years held in Washington. Naturally, the eyes and ears of the international economic and financial circles are on the statements from the IMF and World Bank senior officials and the details in the published reports.
Hence, the IMF's "doomsday cycle" warning naturally attracted a lot of attention. What is meant by this expression is the possibility a global public debt crisis could happen together with a global banking crisis. Because, concerns are being expressed more frequently that the United States, some leading European Union states, the United Kingdom, Brazil and even China, may enter a "spiral" in the next five years, especially in the ratio of public debt to national income.
Accordingly, leading central banks such as the U.S. Federal Reserve (FED) and the European Central Bank (ECB) continue to tighten their monetary policy in order to eliminate the stickiness in "core inflation," and therefore raise monetary policy interest rates, may also bring up a process that may trigger the doomsday cycle pointed out by the IMF. Since, while the two "black swans," namely the COVID-19 pandemic and the ongoing Russia-Ukraine war, have already triggered a lot of troubles and disruptions in the global supply chain, and while the world's leading economies are dealing with problems in production, productivity and efficiency, further tightening of the monetary policy will, in turn, trigger the risk of recession, decrease in tax revenues, growth in the budget deficit and more public borrowing.
In addition, the increase in monetary policy interest rates will increase the cost of savings and the cost of credit. In most of the world's leading economies, increasing problems in the banking system, the asset-liability balance of the balance sheets, and the deposit-credit costs may adversely affect the financial situation of many banks and can cause the banking crisis to deepen. The deepening of the banking crisis, on the other hand, would adversely affect the bond investment appetite of banks, which are the most important buyers of government bonds in meeting the increasing need for public debt.
The situation at hand poses a challenge to the growing fiscal imbalance and public debt requirements of several prominent countries. The IMF highlights two fundamental risks that could trigger each other, leading to a potential doomsday cycle risk. What makes matters worse is that both developed and developing economies require financing for the imperative "clean energy transition" in response to the pressing climate crisis.
Hence, the pressure in debt markets will complicate the United Nations' sustainable development goals (SDG) and the clean and renewable energy transformation moves toward the climate crisis.
Türkiye, meanwhile, is among the countries with the best ratio of public debt to national income among the G-20 and Organisation for Economic Co-operation and Development (OECD) member countries, with its lasting success in the public fiscal discipline in the last 20-22 years. For this reason, it is critical for Ankara to maintain its fiscal discipline success.
After the devastating Feb. 6 earthquakes, or the "disaster of the century," Türkiye must use this advantage effectively in the restructuring of our 11 provinces and in healing wounds to build new smart, green and clean energy-oriented cities. While the risk of global public debt to the global gross domestic product (GDP) ratio being 100% or above between 2023 and 2028 is evident, it would be appropriate for the IMF and the World Bank to point out more concrete solutions to eliminate risks rather than identifying the risks.
