Record global government debt of $92 trillion USD, poses challenges for default risks due to inflation and rising interest rates, warns Bank of Canada..“Against a backdrop of historically high inflation and rising nominal and real interest rates, debt service payments remain challenging,” said a bank report Sovereign Default Database: What’s New in 2023? .“General government debt remains elevated as interest rates rise globally.”.According to Blacklock’s Reporter, the worldwide defaults in 2022 were $558 billion USD..“The total value of sovereign debt in default increased 35%,” wrote researchers..Governments to default on loan payments included Puerto Rico, Russia, Sri Lanka, Sudan, Ukraine and Venezuela. .Major defaults in the past included Mexico in 1982, Chile in 1983, Russia in 1998, Argentina in 2001 and Greece in 2012. .The Republic of Ireland in 2010 skirted insolvency after receiving European Union loans equivalent to 40% of its GDP..In Canada's history, two provinces have experienced debt defaults, Alberta in 1936 and pre-Confederation Newfoundland and Labrador in 1933. The federal government has never defaulted on its loans. .In 2021, the Cabinet raised the country's debt ceiling under the Borrowing Authority Act. The debt ceiling was increased by 56%, setting a new record at $1.83 trillion. .In her March 28 budget, Finance Minister Chrystia Freeland estimated that debt service charges for this year would amount to $43.9 billion. .However, the Bank of Canada has increased its key interest rate on interbank loans by half a point. .As a result of this rate hike, the charges are now projected to be at least $2.3 billion higher, according to the Parliamentary Budget Office..“Following such a shock of 1% point federal debt charges go up by $4.5 billion,” Budget Officer Yves Giroux said in 2021 testimony at the Commons Finance committee. Even before recent rate hikes, Cabinet projected debt interest payments would cost $46 billion next year..“I think it’s really important to put numbers in context,” Minister Freeland testified on May 16 at the Commons Finance committee. .“Without context, numbers are meaningless. Our debt service charges are low in Canada’s historical context and they are low compared to what our peers in the G7 are paying.”.“Our debt service charges are absolutely handleable,” said Freeland. She did not elaborate. .According to the Department of Finance, the previously predicted cost of debt servicing for taxpayers would reach $50.3 billion by 2027. This amount is twice as much as what it was before the pandemic. .“You have to pay the money back,” Conservative MP Adam Chambers (Simcoe North, ON) told the Finance committee. .“Through an entire cycle, we haven’t paid any money back. The government said it was just going to run a couple of small deficits when it started and now they are as far as the eye can see.”
