New report warns of record borrowing levels amid record-low interest rates and deeper bond markets
Global debt has hit a high of more than US$250 trillion, and is ballooning toward a new record of US$255 trillion by year’s end — equivalent to over US$32,500 for every person on the planet.
In a report last week, the Institute of International Finance (IIF) warned that the world’s borrowing is on track to exceed its annual economic output by more than three times. That advance has been powered by a US$7.5-trillion surge in the first half of the year, around six tenths of which came from the U.S. and China.
“With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said.
As reported by Reuters, government debt underwent the biggest rise in the first half of 2019 with a 1.5% increase, and is on pace to top US$70 trillion. Non-financial companies followed, advancing 1%.
“The big increase in global debt over the past decade — over $70 trillion — has been driven mainly by governments and the non-financial corporate sector (each up by some $27 trillion),” the IIF said. “For mature markets, the rise has mainly been in general government debt (up $17 trillion to over $52 trillion). However, for emerging markets the bulk of the rise has been in non-financial corporate debt (up $20 trillion to over $30 trillion).”
State-owned companies are also playing a bigger role, the report said, accounting for more than half of non-financial corporate debt in developing markets. That has made sovereign-related borrowing the most significant driver of global debt over the past 10 years.
“EM debt also hit a new record of $71.4 trillion (220% of GDP),” the IIF said in its report.
Some have adopted a “look on the bright side” position low interest rates, particularly as they open a window for corporate entities to fund their ventures through borrowing. Rate reductions have also been widely used as a way for countries to support their sagging economies.
“However, with diminishing scope for further monetary easing in many parts of the world, countries with high levels of government debt (Italy, Lebanon) — as well as those where government debt is growing rapidly (Argentina, Brazil, South Africa, and Greece) — may find it harder to turn to fiscal stimulus,” the IIF said.
According to the institute, the rise in debt levels came as a result of a deepening in the global bond markets, which have increased from US$87 trillion in 2009 to over US$115 trillion in mid-2019.
“The bond universe has grown most rapidly in emerging markets, swelling by over $17 trillion to near $28 trillion since 2009,” the report said.
