Global debt has ballooned to $164 trillion, says a worried IMF
20 April 2018
The world’s debt load has ballooned to a record $164 trillion, a trend that could make it harder for countries to respond to the next recession and pay off debts if financing conditions tighten, the International Monetary Fund has warned.
A fifth of emerging markets and middle-income countries had debt levels above 70 per cent of GDP, led by Brazil at 84 per cent and India at 70.2 per cent. Gross government debt in China stood at 47.8 per cent last year, according to the IMF.
Global debt, public and private alike, hit a record $164 trillion in 2016 - almost 225 per cent of the world's economic output and up 8 per cent from 2015. Debt-to-GDP ratios in the advanced economies are at levels not seen since World War II, while for emerging market and middle-income countries these ratios have hit levels last seen during the 1980s debt crisis.
"The world is now 12 per cent of GDP deeper in debt than the previous peak in 2009," says the IMF’s latest semi-annual Fiscal Monitor report released on Wednesday.
According to Vitor Gaspar, director, IMF Fiscal Affairs Department, which prepared the report, most of the global debt is in advanced economies, at 105 per cent of GDP on average. But in the past decade, emerging market economies have been responsible for most of the increase.
“One hundred and sixty-four trillion is a huge number,” said Gaspar. “When we talk about the risks looming on the horizon, one of the risks has to do with the high level of public and private debt.”
"One-fifth of emerging market and middle-income economies had debt above 70 per cent of GDP in 2017, similar to levels in the early 2000s in the aftermath of the Asian financial crisis. Among low-income developing countries, 20 per cent now boast debt above 60 per cent of GDP, compared with almost none in 2012," said the report.
"Underpinning debt dynamics for all countries are large primary deficits, which reached record levels in the case of emerging market and developing economies," it added.
The global debt burden clouded the IMF’s otherwise upbeat outlook of the world economy, which is in its strongest upswing since 2011.
The fund on Tuesday forecast expansion of 3.9 per cent in 2018 and 2019, while saying in subsequent years the global economy could be impacted by tighter monetary policy and the fading effects of US fiscal stimulus.
Surging private-sector debt, particularly in China, is driving the build-up. China has accounted for almost three-quarters of the increase in private debt since the global financial crisis, according to the fund.
The IMF figures lay bare the scale of the debt hangover from which the world is still recovering a decade after the financial crisis pushed the global banking system to the brink and tipped the world economy into recession. Governments increased spending to boost growth, while central banks resorted to unconventional methods to ease financing conditions, such as buying bonds.
High levels of sovereign debt could make it difficult for governments to refinance when their debt reaches maturity, especially if financing conditions tighten, the IMF said. Large debts also impede the ability of nations to increase spending if their economies fall into recession, and may cause a drag on growth, according to the fund.
The IMF said countries should take decisive action to rebuild their fiscal buffers so they can increase spending during hard times. The fund urged the US, whose budget deficit is expected to surpass $1 trillion by 2020, to “recalibrate” its fiscal policy so government debt-to-GDP levels decline over the medium term.
The combination of last year’s tax cuts and increased government spending in a recent US budget deal will benefit all income groups, the IMF said. However, those in the top quintile of incomes would benefit the most, followed by those in the bottom quintile, the fund said. As a result, the measures may contribute to the further “hollowing out” of middle-class incomes, it said.
Many governments have troubling debt-to-GDP levels, according to the fund. More than one-third of advanced economies had debt-to-GDP levels above 85 per cent, three times more nations than in 2000, the IMF said. Among major economies, Japan had the highest debt-to-GDP level last year, at 236 per cent, followed by Italy at 132 per cent and the US at 108 per cent.