Washington – For the first time in years the International Monetary Fund is optimistic about global economic growth. But it sees a new problem: mounting debt in the world’s largest countries.

“Debt levels are increasing in G20 economies,” Tobias Adrian, who heads the IMF’s monetary and capital markets division, said Wednesday.

Introducing the IMF’s newest assessment of risk in the world’s financial system, Adrian noted that the extremely low interest rates of the past several years have allowed countries to borrow easily to finance their rebound from recessions.

Another side of the problem is the dependence of emerging market and lower-income economies on external funding, especially portfolio investment inflows.Around $300 billion in such funds will flow into these countries in 2017, supporting their growth.

That leaves such markets vulnerable to shocks like geopolitical turmoil and jumps in interest rates, which would increase the cost of debt, and could spark sharp outflows in portfolio investment.

“It’s going to be a challenge especially when you move to a world where the Federal Reserve is going to raise US interest rates, global rates will rise, and debt service will rise.”

© IMF Stephen JAFFE International Monetary Fund Financial Counsellor and Director Tobias Adrian answers questions at the Global Financial Stability Report press conference, at the IMF Headquarters in Washington, DC, on October 11, 2017

© IMF Stephen JAFFE – International Monetary Fund Financial Counsellor and Director Tobias Adrian answers questions at the Global Financial Stability Report press conference, at the IMF Headquarters in Washington, DC, on October 11, 2017