Ali Khwaja, chairman of KTrade Securities, a Pakistani-based stock and commodity outfit, says the fiscal deficit in the U.S. can negatively impact the global financial markets.

Mr Khwaja disclosed this on Thursday during the global virtual analysis of the KTrade Securities research report.

He said the deficit could create less trust among international market players and increase the search for an alternative currency.

He said the highlight had become important because the U.S. spending spree is creating massive risks for the global financial system, particularly the developing world.

Mr Khwaja said as the U.S. government borrowed more, the resulting increase in interest rates would continue to ripple through global financial markets.

“Right now, the U.S. is still able to borrow and attract capital from the rest of the world, but countries are feeling the pinch of rising interest rates. In five years or so, most emerging and low-income countries that rely on external borrowing will need to use most of their budget for the payment of interest costs.

“Soon, other countries, especially large holders of the U.S. debt, will start asking questions about where the U.S. debt is heading, and they will take some policy options,” he said.

He said the situation could be dangerous, as the U.S. will have to defend its position by non-economic means.

Mr Khwaja reiterated that the U.S. Congressional Budget Office had warned that the rate of increase, equivalent to $6.4 billion of new debt per day, is pushing the U.S. fiscal sustainability to its limit.

He further said that by the early 2030s, government bills would exceed revenue and that the escalating debt trajectory raises concerns about the feasibility of financing and the associated costs.

(NAN)