UAE should learn to love its liabilities as well as its assets

* username: rupertbu

Sovereign debt is the big issue of the second decade of the 21st century. Mohammed El-Erian, the chief executive of the US investment company Pimco, says the “simultaneous and significant deterioration in the public finances of many advanced economies” is comparable to the re-emergence of China as a factor that will dominate the global economic scene for many years to come.

I’m sure he is right. For example, US sovereign debt has gained more than 20 percentage points as a ratio to GDP over the past two years; countries which account for more than 40 per cent of world GDP now have fiscal deficits of 10 per cent or more.

This is a serious shock to the world economy, especially in the developed countries of the Americas, Europe and some parts of Asia. As Mr El-Erian points out, for most of the period since the end of the Second World War, public deficits were in the range of zero to 5 per cent of GDP, and most of the debtors came from emerging markets.