Global debt hits record high above $305,000,000 driven by China and US – IIF
Global debt rose by $3.3 trillion in the first quarter of 2022 to a new record high of over $305 trillion, largely driven by the world’s two largest economies, China and the United States.
While Chinese debt increased by $2.5 trillion in the first quarter, the United States added $1.5 trillion. However, total debt in the eurozone has declined, the Institute of International Finance (IIF) said in its Global Debt Monitor report.
The rise was mainly driven by corporate (non-financial) and government borrowing, with non-financial sector debt now exceeding $236 trillion, or nearly $40 trillion since the start of the pandemic.
Emerging market (EM) debt is now approaching a record high of $100 trillion.
“As the ripple effects of the Russian-Ukrainian war continue to disrupt global economic activity, growth is expected to slow significantly this year, with negative implications for debt dynamics,” the report notes.
Reflecting soaring inflation, the global debt-to-GDP ratio declined for the fourth consecutive quarter in the first quarter of 2022. The decline was most evident in mature markets. At over 348% of GDP, global debt is around 15 percentage points lower than its peak in the first quarter of 2021, the IIF noted.
While higher inflation will continue to contribute to lower debt ratios in general, sovereign borrowers and companies that have less currency and short-term debt could benefit the most from higher inflation, at least in the short term, the IIF said, adding that central banks are moving. to curb inflationary pressures, higher borrowing costs will exacerbate debt vulnerabilities.
The impact could be more severe for emerging market borrowers who have a less diversified investor base.
Due to rising borrowing costs, sovereign balance sheets remain under pressure, the IIF said. Global public debt has increased by 14 percentage points ($17.4 trillion) to 103% of GDP in the first quarter of 2022, since the start of the pandemic.
“With government financing needs still well above pre-pandemic levels, higher and more volatile commodity prices could force some countries to increase public spending even more to stave off social unrest,” he said. ‘IIR.
With rising debt levels in emerging markets, governments face the problem of lack of debt transparency, which translates into higher borrowing costs and reduced access to private capital markets for investors. borrowers.
“The lack of timely disclosure of public debt obligations, the very limited coverage of contingent liabilities (including liabilities of public enterprises) and the extensive use of confidentiality clauses are the main obstacles causing asymmetries between creditors and debtors,” the IIR report said.
(Reporting by Seban Scaria; editing by Daniel Luiz)