* WEF highlights threat from fiscal crises, chronic diseases
* Risk of underinvestment in infrastructure also key
* Warns of increased interconnection among risks
LONDON, Jan 14 The risk that deteriorating
government finances could push economies into full-fledged debt
crises tops a list of threats facing the world in 2010,
according to a report by the World Economic Forum.
Major world economies have responded to the steep downturn
created by the financial crisis with stimulus packages and by
underwriting private debt obligations, causing deficits to
balloon. This may have helped keep a worse recession at bay, but
high debt has become a growing concern for financial markets.
The WEF think tank, in its annual Global Risks report ahead
of its meeting in Davos, Switzerland, said unsustainable debt
levels ranked among the top three risks for the year ahead,
alongside underinvestment in infrastructure and chronic diseases
driving up health costs and reducing economic growth.
Already fragile economies, particularly in the developed
world, are at risk of "overextending unsustainable levels of
debt", potentially leading to full-blown crises with inevitable
social and political consequences, not least higher
unemployment, it said in the report released on Thursday.
"Governments, in trying to stimulate their economies, in
fighting the recession, are (building) unprecedented levels of
debt and therefore there is a rising risk of sovereign
defaults," said John Drzik, Chief Executive of management
consultancy Oliver Wyman, which was one of the contributors to
the WEF report.
He said higher unemployment levels could follow, with
associated social and political risks.
"Debt levels have risen from 78 percent (in 2007, before the
crisis) to 118 percent of GDP in the G20 ... this is something
that could really create much more of a crisis than in the past,
and we are already in a vulnerable situation."
Worries over Dubai, Ukraine and Greece have spilled over
into global markets in the last month, and all three look set to
remain under pressure, with the threat also high for the
economies of "irrational exuberance" -- the United States and
the United Kingdom.
The WEF report said both these major economies were faced
with "tough choices" in the months ahead as they seek to time a
"gradual and credible withdrawal of fiscal stimulus so that the
recovery is sustained but not so late that fiscal deficits cause
fear of sovereign debt deterioration".
Other major risks highlighted by the report include
underinvestment in infrastructure, which could hurt food and
energy security. The World Bank puts global infrastructure
investment needs at $35 trillion over the next 20 years.
Chronic disease -- from heart disease to strokes -- is
another threat looming, as the cost of treating patients rises,
driven by demographic changes and dietary shifts.
The WEF warned the problem was key for both developed and
developing nations, particularly as governments seek to reduce
the burden of healthcare and aid funding shrinks.
For the full report, click on:
(Reporting by Clara Ferreira-Marques, editing by Mike Peacock)