The International Monetary Fund (IMF) building in Washington, DC on January 26, 2022 (AFP)

High public debt has become a serious threat to the economies of countries around the world, including Western ones, due to years of irresponsible monetary policies and budget plans, International Monetary Fund (IMF) Executive Director for Russia Aleksei Mozhin told Sputnik.

"After COVID, there was a big recession in the economy; budget deficits increased and had to be financed by increasing public debt. Many countries found themselves in a critical situation in terms of public debt, including Western countries," Mozhin said.

Pumping cash into markets and reckless financial actions are pillars of the current debt crisis, he added.

Giving Japan as an example, the IMF senior official said that the country's policies to avoid a debt default for decades resulted in its economy not growing throughout that period. The Italian economy is also another example, he added.

"All these are consequences, first of all, of the skyrocketing level of public debt," he told the news outlet, noting that most European countries are not facing critical debt levels, including the UK, France, and pain. The situation is "simply awful."

He stressed that economies in bad shape must pass through a painful phase before improving, noting that this is the only solution. Interest rates must be raised to lower inflation, continued, however mentioning that this measure kills economic growth and increases borrowing costs.

"If there is a huge public debt, it means that 'budget consolidation,' achieving budget surplus, is required. This requires either an increase in taxes in order to increase budget revenues or a reduction in budget expenditures. Both kill economic growth," Mozhin said.

"The very political system of these [Western] countries leads to the fact that they have a complete fixation on short-term indicators," Mozhin said. "Good growth and low unemployment must be achieved today at all costs, otherwise you may lose the upcoming elections. And elections are held there almost every year."

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European countries that find their economies struggling because of high debt levels are able to void defaulting by issuing new bonds and forcing local banks to buy into the government's debt. "Europe will gradually turn into a region with an average standard of living. This is a tragedy, but I do not see the ability of the authorities to allow pain," he said.

IMF Faces Difficulty Providing New Loans to Countries in Need

The IMF is having a hard time issuing new loans to many low- and middle-income countries that have large public debt, Mozhin added. "Since IMF lends money, it turns out that its loans lead to a further increase in the public debt of these countries."

While the fund has sufficient funds to assist countries in need, many of them fell into a severe debt crisis, he said, stressing that there is a need to "lower the public debt, restructure it, partially write it off."

Modifying lending terms for Ukraine

However, this process is difficult as state creditors are of different categories, including international bodies and bilateral loans between two counties, as well as private institutions that purchase government bonds.

"We don't even know the names of these commercial lenders, because they force the authorities of countries to sign so-called 'confidentiality agreements' when granting loans. Basically, these are American non-bank financial institutions, such as asset management funds," Mozhin added.

Mozhin said that the IMF has already changed loan rules three times in the past eight years in the case of Ukraine.

Further going into detail, he stated that most lending designated to Ukraine, which reached $15.6 billion in March, was used by Kiev to repay its previous debts to the IMF.

"In fact, the IMF solves two tasks here. First, it allows for avoiding a Ukraine default to the Fund. There has never been such a case in the history of the IMF," Mozhin said. "And second, the IMF kind of helps meeting the wishes of the main shareholder."

Earlier this month, IMF spokesperson Julie Kozack revealed that the fund's executive board will look into providing a financial package to Ukraine later in June worth $900 million.

IMF can play key role in limiting impact of collapse in global cooperation

The international financial body can play a role in minimizing the negative impact of the current period on the falling global economy, the director added.

"I still hope that the IMF will survive, because I really believe in global cooperation, that this period of devastation and collapse will end someday."

China eyed by the West

China has become the main lender to developing countries, Mozhin said, adding that the West is trying all measures to prevent these countries from paying off their debt in order to damage China's economy and foreign investment projects.

"The West seeks to ensure that developing countries with a high level of public debt do not pay China, but not other creditors, including private holders of government bonds of these countries," Mozhin said

The lending model has largely changed after the share of Western countries - which are members of the Paris Club of creditors - from debt to developing nations dropped significantly and was replaced by Chinese loans.

Meanwhile, Beijing rejects Paris Club diktats and IMF on terms of debt write-offs and debt restructuring models.

"The Chinese, on the one hand, are trying to find some way out, they are not enemies of these poor countries ... you need to understand that if China finances, then it is its banks that finance, they finance specific projects - to build a new airport or a seaport there," Mozhin said.

"There is a huge element of scam in everything. The holders of government bonds finance the budget deficit at huge, completely usurious interest. And it is not clear how to deal with them," Mozhin said.