Japan tops developed world ‘debt curse’ list

TOKYO — The developed world is suffering from a “debt curse,” with the worst case — Japan — expected to take up to 2084 to bring its public debt down to an acceptable level, a study said on Wednesday.

“The largest old industrialised nations — from Japan to the UK — will all suffer a debt curse, in the worst case lasting until 2084,” said business school IMD in their annual year-book on world competitiveness.

Japan topped the IMD’s new Debt Stress Test, a measure of when countries can bring their debt levels down to a “bearable” level of 60 percent of their gross domestic product.

Italy was next worst, as it is estimated to take up to 2060 to bring its debt down to an acceptable level.

Fellow heavily indebted eurozone countries lined up close behind, with Portugal expected to take up to 2037, Belgium to 2035 and Greece to 2031 to cut their public debt to bearable levels.

Even disciplined Germany would see debt levels remaining above 60 percent until 2028 and France until 2029.

Britain is estimated to carry heavy public debt until 2028 and the United States until 2033.

“What matters is not only the absolute size of public debt, but also the length of time required to absorb it. In the end, debt-stricken nations may suffer severe losses in competitiveness and standards of living,” said Stephane Garelli, who heads the IMD’s World Competitiveness Centre.

The origin of creditors and the size of the economies also determine the impact of the debt on the country.

While most of the debt in Japan and Italy are held by domestic institutions, in Greece and Portugal, most of the debt are being held by foreign institutions.

The capacity of a country to repay also depends on its size.

While the United States can count on fiscal revenues on the back of GDP growth to repay, countries like Greece, Portugal, Spain, Italy and Ireland have significant current account deficits, said the study.

“In short, countries such as Greece Portugal and Spain have a credibility problem today not only because they have a debt crisis, but also because they lack the means to adequately repay,” it said.

“Other ‘sinners’ have less of a credibility problem: in their case debt is a cost that will limit their competitiveness and the purchasing power of their people,” it added.

The recent debt crisis in Greece has snowballed into a European Union crisis, as investors feared contagion in other heavily indebted states such as Portugal and Spain.