The evolving global economic and business landscape presents a series of challenges and tremendous opportunities for multinational corporations, particularly for their treasurers, CFOs, and CEOs.

As they navigate strategic and financial uncertainty, they must contend with the ticking US national debt time bomb, escalating concerns over payments fraud, the need to proactively manage emerging risks, and the potential rise in corporate America’s interest expenses despite anticipated further interest rate cuts.

This article explores three critical aspects that will shape the priorities of business leaders, finance chiefs, and treasurers—both now and in the future. These focal points will demand their time and attention, significantly influencing corporate strategies, financial decision-making, and risk mitigation efforts in the years ahead.

Record-high US national debt: A ticking time bomb likely to spark a debt crisis

The national debt of the United States hit a new record in July 2024. According to the U.S. Department of the Treasury, the gross federal debt surpassed US$35 trillion for the first time in history.

The US Treasury Department defines national debt as “The amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time.” In essence, this debt represents the full amount of outstanding borrowing by the US federal government over the course of the nation’s history to pay for or cover its operating expenses.

Source: The U.S. Department of the Treasury

Moreover, data from the U.S. Bureau of Economic Analysis (BEA) shows that, as of September 30, 2023, the US debt of $33.17 trillion exceeded the fiscal year 2023 average GDP of $26.97 trillion. “This resulted in a Debt to GDP Ratio of 123%. Generally, a higher Debt to GDP ratio indicates a government will have greater difficulty in repaying its debt”, as indicated by the BEA.

In his new book, What Went Wrong with Capitalism, Ruchir Sharma, Chairman of Rockefeller International and Founder of the investment firm Breakout Capital, observes that the US government debt (including state and local), which is the third highest in the developed world after Italy and Japan, “Is expected to rise between 2023 and 2028 by 14 points, to 137 percent of GDP.”

Sharma further adds that the US national debt, “Was growing nearly twice as fast as the public debt of the United Kingdom, more than five times faster than that of Japan and ten times faster than the average for the four largest European states.”

In June, the nonpartisan Congressional Budget Office (CBO) reported that US federal debt will continue to climb and is poised to reach $56.9 trillion by 2034, as rising government spending and interest expenses outpace tax receipts.

The CBO estimates that interest payments on the national debt totalled $658 billion in 2023, exceeding most other components of the federal budget. As of August 2024, data from the US Treasury Department reveals that “It costs $1049 billion ($1.049 trillion) to maintain the debt, which is 17% of the total federal spending in fiscal year 2024.”

The burgeoning US government debt is a ticking fiscal time bomb that now represents one of the greatest threats to its long-term economic growth and financial stability. Rising debt levels may expose the US to instability in international credit markets, weaken global confidence in the US dollar as the world’s primary reserve currency, and accelerate the inevitability of an advancing debt crisis.

While a debt crisis might not unfold in 2025, it will arise in the future if the US continues its reliance on debt and deficits. Such a crisis could trigger reduced business investments, inflation spikes, and a plunge in global financial markets.

Given that the US federal debt is the subject of ongoing concern and is likely to spark a debt crisis, CEOs, CFOs, and corporate treasurers must pay attention to America’s mounting debt and prepare for a potential crisis by closely monitoring political developments, engaging in scenario and sensitivity analysis to adapt to changing circumstances, diversifying their supply chains, optimizing cash management, and maintaining adequate liquidity reserves.

Key focus areas for treasury and finance in the coming years: Technology, payments, payments security, and risk management

Besides cash and liquidity management, technology, payments, payments security, and risk management will be top priorities for corporate treasurers and finance leaders in the upcoming years.

In response to ongoing global economic uncertainty and heightened geopolitical tensions, corporate treasuries are expected to speed up their digital transformation by harnessing emerging technologies to improve cash flow visibility and liquidity forecasting, thereby enhancing efficiency, mitigating risks, and bolstering cybersecurity. This transformation will require treasurers to focus more on technology, as it takes a dominant role in treasury operations and controls, while also staying attuned to advances in treasury technology.

In fact, according to The Association of Corporate Treasurers’ (ACT) recent Business of Treasury 2024 survey report, “The treasury community is expecting that technology will take up most of its time and attention within the next five years. Even in 12 months’ time, treasurers expect the time spent on technology will be second only to capital and liquidity management.”

The importance of payments is also on the rise within corporate finance and treasury worldwide, as they enable the efficient transfer of funds both domestically and internationally. The rapid growth of the payments sector can be attributed to several crucial factors: advancements in payment technologies, the advent of innovative payment methods, improvements in infrastructure, and the increasing adoption of the ISO 20022 financial messaging standard by corporations and banks.

Moreover, the rising digitization of businesses, the emphasis on enhancing digital security and convenience, and the significant growth in digital payments, cross-border payments, and real-time payments are all contributing to this upward trend. As interoperability takes centre stage in the payments ecosystem, multinational companies—and their CEOs, CFOs, and treasurers—are likely to concentrate more on payments, a pivotal area that will heavily influence the future of global commerce and trade.

The proliferation of payments and breakthroughs in payments technology has unlocked fresh possibilities for perpetrating payment fraud.

Payment fraud has repercussions that extend beyond just consumers, placing a substantial strain on organizations that encounter fraud every year. Indeed, global payment fraud is projected to continue its upward climb with estimates suggesting it could cost $40.62 billion by 2027.

Additionally, examining the payments fraud landscape in 2023, the Association for Financial Professionals® (AFP) 2024 Payments Fraud and Control Survey Report (sponsored by Truist) said, “We see an uptick in fraud activity from the previous year, with 80% of organizations reporting they were a victim of an attempted or actual fraud attack.”

With the growing complexity, sophistication, pervasiveness, and costs associated with payments fraud, along with an expected surge in fraud attempts, business leaders, finance chiefs, treasurers and their teams are anticipated to intensify their efforts and engagement in strengthening payments security.

Consequently, they will need to prioritise payment fraud detection and prevention and approach securing payments as a critical and continuous process. In this context, regular and specific payment fraud training (securetreasury.com) for corporate finance and treasury professionals will significantly aid in preventing and combating payments fraud, thereby reducing the impact of such losses in the dynamic world of payments.

Risk management will also be a significant time consumer for treasurers, CFOs, and CEOs in the coming years, as they find themselves dedicating more hours to addressing a wide array of global challenges and various types of risks than they have in the recent past.

Today’s finance leaders and treasurers are required to have a comprehensive grasp of a diverse range of risks—currency, credit, interest rate, liquidity, supply chain, enterprise, counterparty, regulatory, commodity, and market—and how the interconnectedness of these individual risk components can impact the organization’s strategy, cash flow, reputation, branding, growth and value.

According to KPMG International’s new Future of Risk report, new risks and demands have also come to the forefront such as AI, geopolitical, reputation, environmental, social and governance (ESG), IT and cyber risks.” Finance and treasury executives must therefore deepen their understanding of these emerging and disruptive risks, as well as how to mitigate them.

These executives will also have to raise their game to address these evolving risks by transforming risk management into “A value creator across the business”, rather than simply focusing on damage prevention, as stated in the Future of Risk report. This shift will involve devoting more time and attention to risk management in the coming years, ensuring that risks are handled proactively, and that organizations can capitalise on the opportunities that risk presents.

Fed cut rates, yet corporate America faces higher interest expenses

Last month, the US Federal Reserve (the Fed) lowered the federal funds rate by half a percentage point to a range between 4.75% and 5%. This marked the US central bank’s first interest rate cut in four years, with further rate reductions expected later this year and into 2025.

While lower interest rates will likely ease borrowing costs for consumers, corporate America is likely to experience a rise in interest expenses. Why is this the case?

A recent article in The Economist suggests that the most significant reason corporate America’s interest rate costs are poised to increase is “The behaviour of finance directors. American companies borrowed heavily on longer-term deals in 2020 and 2021, after the Fed had cut rates and before the tightening cycle got under way. Low rates were locked in and firms were relatively insulated from the subsequent tightening. Indeed, the unusually strong performance of the S&P 500 index of large American companies, which has risen by 24% since the Fed first raised interest rates, may in part be explained by this protection.”

However, The Economist explains that the tide is now turning as locked-in deals begin to expire. Fixed-rate loans usually span three to five years, and over US$2.5 trillion—representing 9% of the US GDP—of fixed-term corporate loans are slated for refinancing before the end of 2027. Of this amount, $700 billion is due in 2025, followed by more than $1 trillion in 2026, according to the article.

The article goes on to caution that the industries most exposed to refinancing risk are those that benefited greatly from cheap fixed-rate deals shortly after the onset of the COVID-19 pandemic, especially manufacturers.

The Economist further warns that “The pain may be considerable. Bonds of the typical American, non-financial, BBB-rated firm due to expire in 2025 have a median interest rate of just 3.8%. On current trends they will probably attract a rate of closer to 6% when reissued. Interest costs will rise just as interest received falls.”

To conclude, in an era marked by economic uncertainty, corporate treasurers, CFOs, and CEOs must strengthen organizational intelligence, demonstrate strategic foresight, and lead with vigilance to tackle complex challenges before they escalate, and opportunities are lost.

A relentless focus on areas that will amplify business growth and drive profitability will be critical. Equally important is safeguarding the organization by proactively planning and preparing for potential concerns and crises in advance, accounting for them in operational strategies to prevent future financial losses and disruptions and seizing the opportunities these challenges may present.