The IMF and the World Bank held their spring meetings in Washington at the end of last week. One of the landmark events coming from the gathering was an agreement among member states (after three years of negotiations) on reforms to the World Bank in return for a $13 billion capital increase for the institution, the first such contribution since 2010. Perhaps even more significant though was the release of an IMF report on global debt on Wednesday. The findings were alarming in as much as global debt to global GDP stands at 225 percent of global GDP, up 12 points since hitting record levels in 2009. Much of that increase is thanks to China, which has contributed more than 43 percent to the increase in global debt since 2007, according to the fund. The country’s government debt to GDP ratio has increased by more than one third over the last five years, with private debt growing at even more alarming rates. Meanwhile, the government debt to GDP ratio of some OECD countries has reached concerning levels, particularly in the US and Japan at around 108 percent and 240 percent respectively, according to Statista. Such an increase in global indebtedness in many ways comes as little surprise; the onset of the global financial crisis saw inordinate amounts of debt amassed in the financial sector. Governments subsequently stepped in with bailouts and lower interest rates in a bid to avoid a repeat of the Great Depression of the 1930s. But while the strategy was largely successful, with the crisis easing, economies for the most part have not deleveraged, and have instead simply shifted debt from the private to the public sector. In a bid to keep economies growing, central banks around the world kept on expanding their balance sheets and lowering rates, until we reached a stage where the world at large become fueled by and addicted to cheap money. Cheap credit and low taxes are sweet and addictive things. Cornelia Meyer Such an expansionary monetary policy has not merely inflated central bank’s balance sheets; it also opened the door to easy money for the private sector, with corporations rushing to leverage up while credit was cheap. Many of them did so way to levels way above what was required for operational purposes. The need has become urgent for both governments and corporations to get a drip on their debt piles, in order to avoid it spinning out of control when rates inevitably begin to rise, as is now the case. The IMF’s chief Christine Lagarde has a point when she admonishes Japan, the US and China to fix the roof while the sun is shining. The IMF expects the global economy to grow 3.9 percent this year and next, more than we have seen since the financial crisis. The global economy — especially Japan, China and the US — need to build buffers and be prepare for future shocks. Put simply, they need to get interest rates up again and government debt down; if they don’t, they will lack the levers to combat the next crisis. Ms. Lagarde did not pull her punches in her warnings to governments. Nevertheless, cheap credit and low taxes are sweet and addictive things. The current US administration for one seems in no mood to heed the IMF’s cautionary words, with tax cuts and increases in government spending set to bloat government debt even further. Without leadership of the world’s largest economy, it will be hard to make the rest fall in line. But praise be to Germany, Holland and Switzerland, who have much more cautionary monetary policies and some of them even adhere to debt ceilings. May the world take a leaf of their playbook in order to get ready for the next economic crisis! Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources