Why Do Governments Seek Credit?

Since the last global financial crisis, which was triggered by the infamous 2007 United States housing bubble burst, there has been a significant increase in public debt.

Between 2008 and 2018, developed and emerging nations alike had a voracious appetite for borrowing. As illustrated by Fortunly in the infographic below, national governments collectively obtained $63 trillion worth of debt by 2017.

Five of the biggest economies on the planet hold more than half of the world’s total debt. The United States is the borrower of 31.8% of it. Japan is responsible for 18.8%. China, Italy, and France own 7.9%, 3.9%, and 3.8% slices of the pie.

If these countries have mammoth GDPs, why do they still need to borrow money and pay interest? The simple answer is because they can. Acquiring debt is generally cheap for developed and prosperous rising nations. Lenders believe their bonds are secure, so they are easy to sell.

A large country with access to credit can easily borrow billions or trillions of dollars without any public backlash because there are several reasonable justifications for doing so.

A developed nation, despite having great income, may resort to borrowing to fund geopolitically relevant policies. An emerging market may seek help from creditors to finance programs designed to sustain rapid economic growth. A low-income country may have no choice but to acquire debt to get infrastructure projects off the ground in hopes of luring foreign investors.

Debt is not the only means of raising capital to cover government expenses, but it is among the least politically damaging. A country has to continue spending money to fulfill its commitments and to attain its goals, and greater public debt is usually more acceptable to citizens than a tax increase.

When will the surge in global government debt end? Will there be a crash as some economists predict, or can countries retire their debts productively? No one knows for sure – so keep your eyes open. Check out the infographic to learn more fascinating facts about government borrowing.

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