World public and private debt has reached a record high of 232.9 trillion euros, according to a report by the Institute of International Finance (IFI), which reports an increase of 19.9 trillion euros (8.5%) last year, a higher rise than the 2008 financial crisis.
“World debt grew to a new record of $281 trillion in 2020: Combined with a sharp decline in public and private revenues, driven by the pandemic, total public and private debt for the 61 countries in our sample rose by $24 trillion last year, more than a quarter of the $88 trillion over the past decade,” the Global Debt Monitor released on Wednesday says.
The same document adds that debt outside the financial sector reached 185.9 trillion euros, after having stood at 161 trillion in 2019.
The IFI also adds that the ratio of total debt to world gross domestic product (GDP) rose 35 percentage points to 355% in 2020, “well above the rise seen during the 2008 global financial crisis.”
“In 2008 and 2009, the rise in the global debt ratio was limited to 10 percentage points and 15 percentage points, respectively,” this year the rise “is expected to be relatively modest” as “global debt issuance is still above pre-covid levels (supported by still low borrowing costs).”
World public debt is expected to rise by another $10 trillion this year and exceed $92 trillion by the end of 2021
The institute points out, however, that “debt trajectories can vary significantly” since “the pace of vaccination differs considerably between countries, and difficulty in vaccine distribution can delay recovery by fostering debt accumulation,” something more relevant in the most indebted and low-income countries.
According to the report, public debt stood at 105% of world GDP, up from 88% in 2019, and accounted for “more than half of the rise” in world debt, rising from €3.5 trillion in 2019 to more than €9.9 trillion in 2020.
“We expect global public debt to increase by another $10 trillion this year and exceed $92 trillion by the end of 2021,” the IFI reveals.
The institute warns that “finding the right exit strategy could be even more challenging than after the 2008/09 financial crisis,” and “political and social pressure could limit governments’ efforts to reduce deficit and debt, compromising their ability to deal with future crises.”
“Premature withdrawal of government support measures could mean a surge in bankruptcies and a new wave of non-performing loans, with implications for financial stability for the banking sector,” the IFI warns, but on the other hand, prolonging support could also “encourage the accumulation of debt by the weakest and most indebted companies.”
The paper also points out that private non-financial debt (households and firms) “reached 165% of GDP in 2020, after 124% in 2019,” with measures such as credit moratoria and state guarantees taking this type of debt eight percentage points above 2019, to 100% of GDP.
The financial sector also saw “the biggest annual jump in debt ratios in more than a decade,” with a five percentage point increase in GDP in 2020, “the largest increase since 2007 and the first annual increase since 2016,” the IFI reports.
