After a record-breaking four-year run of borrowing the world is on track to grow debt levels by another 30 per cent by the end of this decade, according to a new Institute of International Finance (IIF) analysis.
The IIF report says global debt grew by US$52 trillion since 2016 in an “unprecedented” splurge of borrowing across all sectors including household, corporate and government.
During the nine months to September 30 this year alone, total world debt jumped by US$15 trillion to hit US$272 trillion with the IIF forecasting a further US$5 trillion in borrowing before year-end.
“If the global debt pile continues to grow at the average pace of the last 15 years, our back-of-the-envelope estimates suggest that global debt could exceed $360 trillion by 2030—over $85 trillion higher than current levels,” the IIF study says.
But if COVID-related borrowing in 2020 tipped the scales to extreme levels, overall global debt was already on a path to record highs for the four-year period beginning in 2016.
“… the debt build-up over the past four years has far outstripped the $6 trillion rise over the previous four years and over earlier comparable periods,” the report says. “As a result, there is significant uncertainty about how the global economy can deleverage in the future without significant adverse implications for economic activity. The next decade could bring a reflationary fiscal response, in sharp contrast to the austerity bias in the 2010s.”
Debt-to-GDP ratios in developed and emerging markets rose to 432 per cent and almost 250 per cent, respectively, by the end of September, the IIF figures show.
While mature countries reported the higher debt-to-GDP ratio, emerging markets would likely feel the pain more keenly with a high proportion of short-term borrowing in the mix.
Government revenue losses in emerging markets during COVID emergencies “have made debt service burden much more onerous – despite the benefit from lower borrowing costs,” the IIF report says. “We estimate that some [US]$7 trillion of EM debt will come due through end-2021, with USD-denominated debt representing 15% of the total.”
Excluding financial borrowing, Canada reported the sharpest rise in debt ratios since the end of 2019, up more than 75 per cent by the end of September this year, followed by Japan, the US and the UK.
NZ was not far behind the UK as measured by the spike in debt ratios in 2020, adding about 30 per cent compared to the end of last year – at a rate slightly above the Euro region.
Sonja Gibbs, IIF managing director, edited the latest global debt study, part of a regular series produced by the international organisation representing over 450 financial institutions.