Freetown, SIERRA LEONE – Global debt is once again on an upward trajectory, despite experiencing significant declines in 2022. According to an article by Vitor Gaspar, the director of the Fiscal Affairs Department at the International Monetary Fund (IMF), along with Marcos Poplawski-Ribeiro and Jiae Yoo, global debt remains a pressing concern.
The latest update of the Global Debt Database reveals that the total debt amounted to 238 per cent of global gross domestic product (GDP) in the past year, which is 9 percentage points higher than the pre-pandemic level in 2019. In absolute terms, this translates to a staggering $235 trillion in global debt, an increase of $200 billion from the previous year.
Despite the rebound in economic growth since 2020 and higher-than-anticipated inflation, public debt has remained persistently high. This is primarily due to fiscal deficits resulting from increased government spending aimed at boosting growth and addressing food and energy price spikes. Even as pandemic-related fiscal support was gradually phased out, public debt only decreased by 8 percentage points of GDP over the past two years, offsetting just half of the pandemic-induced increase.
In contrast, private debt, encompassing household and non-financial corporate debt, experienced a more significant decline, decreasing by 12 percentage points of GDP. However, this reduction was insufficient to completely reverse the surge in debt witnessed during the pandemic.
The authors of the article analyse the trends in debt sources and note that global debt-to-GDP ratios had been on an upward trajectory for decades before the pandemic. Global public debt tripled since the mid-1970s, reaching 92 per cent of GDP (or just above $91 trillion) by the end of 2022. Private debt also tripled to 146 per cent of GDP (or close to $144 trillion) but over a more extended period, spanning from 1960 to 2022.
The article also highlights the challenges faced by low-income developing countries, where debt levels have risen significantly over the past two decades, albeit from initially lower levels. More than half of these countries are at high risk of debt distress, and about one-fifth of emerging markets have sovereign bonds trading at distressed levels.
To address these vulnerabilities, the authors recommend that governments urgently implement measures to reduce debt vulnerabilities and reverse long-term debt trends. For private sector debt, this involves monitoring household and non-financial corporate debt burdens and associated financial stability risks closely. In the case of public debt vulnerabilities, establishing a credible fiscal framework is essential to balance spending needs with debt sustainability. Additionally, low-income developing countries should focus on improving their capacity to collect additional tax revenues, as discussed in the IMF’s April Fiscal Monitor. ZIJ/19/9/2023