Global debt of $ 281 trillion set to rise again in 2021, IIR says

The world has never been so in debt after a year of fighting Covid-19. And there are still more loans to come.

Governments, businesses and households raised $ 24 trillion last year to offset the economic toll of the pandemic, bringing total global debt to a record high of $ 281 trillion by the end of 2020, or more than 355% of global GDP, according to the Institute of International Finance. They may have no choice but to continue borrowing in 2021, said Emre Tiftik, Washington-based director of sustainability research, and economist Khadija Mahmood.

Even if vaccines are rolled out, the central bank’s low policy rates keep emissions above pre-pandemic levels. Governments with large budget deficits are expected to increase their debt by an additional $ 10 trillion this year, as political and social pressures make it difficult to cut spending, pushing this group’s debt to over $ 92 trillion. by the end of 2021, estimates the IIR.

“The biggest challenge is to find a well-designed exit strategy from these extraordinary tax measures,” Tiftik said in a webinar on Wednesday.

Mature and emerging markets will seek a perfect balance. While an economic recovery may cause some governments to begin developing strategies to reverse stimulus measures, doing so too soon could magnify the risk of default and bankruptcy. But waiting too long could lead to too much debt.

Even amid historically low credit spreads, global debt markets began to sell off, pushing sovereign yields higher. Long-term US Treasury yields hit their highest level in about a year this week.

The increases in debt-to-GDP ratios in the non-financial sector in France, Spain and Greece have been among the strongest in mature economies, with governments rapidly increasing their borrowing. In emerging markets, China saw the biggest increase in debt ratios last year, followed by Turkey, Korea and the United Arab Emirates, according to IIR data.

Here’s what else to know:

  • Non-financial businesses increasingly depend on government support, which can exacerbate pre-existing vulnerabilities
  • According to the IIR, financial firms experienced the largest annual increase in debt ratios in more than a decade; This is the first year-over-year increase since 2016
  • In emerging markets, South Africa and India recorded the largest increases in public debt ratios last year; Accumulation of corporate debt highest in Peru and Russia
  • The foreign currency debt of developing countries remained at nearly $ 8.6 trillion in 2020 “as strong currency losses in emerging markets have reduced the incentives for companies to borrow in foreign currencies,” according to the IIR.

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