Rising Asia debt levels could temper growth -World Bank chief economist

By Andrea Shalal

MARRAKECH, Morocco (Reuters) – Rising debt levels among “seemingly healthy” countries in Asia could drag growth in the region below currently forecast levels, World Bank Chief Economist Indermit Gill told Reuters in an interview on Monday.

Gill said he remained critical of the slow pace of debt restructurings under the Group of 20 Common Framework for restructuring the debt of the poorest countries, and said it was critical to speed up those processes.

But he said surprisingly high debt levels in Asia were also a concern, noting that increased government borrowing from domestic markets would limit the level of credit available to private firms, resulting in faltering investment.

“We have a simultaneous problems: too much debt and too little investment,” he said. “There’s a lot of government consumption and private consumption being financed through debt. There is not a lot of investment being financed through credit, and that’s not great.”

The result could be “much lower growth” than we were forecasting, he said, without providing any specific numbers. “So it won’t be a situation of debt distress, it will just be slumping growth. But it’s an equally serious issue. Now we’re talking about very, very large countries.”

Gill declined to give specific examples, but a recent World Bank report showed government debt ran around 85% of GDP in the average South Asian country, higher than in other emerging market, developing economy regions.

Debt is rising in the region due to growing government spending, low domestic revenue and increasing debt service costs, the report found. It noted a number of factors, including losses at a major state-owned bank, could drive borrowing costs to an unsustainable level.

Debt levels were also up in East Asia, Gill said. “If you look at the debt numbers (in East Asia), all of them are up. The one which is relatively low is China, but we know that in China, it’s not the central government debt that’s the problem, it’s the subnational and corporate and the household debt.”

Gill said he worried that the world’s focus on the poorest countries that were covered by the Common Framework could lead to surprises in other countries that were seemingly healthy.

(Reporting by Andrea Shalal; Editing by Jamie Freed)