Warning after worldwide debt reaches 322% of GDP
The latest figures show where debt stood at the end of last year - before the world economy was further ruined by coronavirus.
Tuesday 7 April 2020 19:34, UK
Worldwide debt reached 322% of GDP last year, according to new figures which will worry governments planning post-coronavirus economic recoveries.
Worldwide debt across all sectors rose by $10trn (£8trn) in 2019 to more than $255trn (£206trn), and that was before COVID-19, which forced many of the world's governments to bail out businesses and to pay workers in an effort to help them survive the pandemic.
By the end of last year, global debt stood at 322% of GDP - 40 percentage points higher than at the beginning of the 2008 financial crisis, according to the Institute of International Finance's Global Debt Monitor.
The IIF forecast that the global debt burden would rise "dramatically" in 2020, with gross government debt issuance soaring to a record high of more than $2.1trn last month - more than double the average of $0.9trn in 2017-19.
A global recession is looming, the monitor said, adding that this would begin with $87trn more of global debt than there was at the onset of the 2008 financial crisis.
The news will worry world leaders as they continue to commit unprecedented financial stimulus to support their economies.
Debt levels could climb to 342% of GDP by the end of this year, assuming a doubling of net government borrowing and a 3% contraction in global GDP, the monitor said.
IIF director Emre Tiftik said: "With the COVID-19 fiscal response in full swing, the global debt burden is set to rise dramatically in 2020.
"Remarkable uncertainty around the scale and duration of the pandemic makes point estimates challenging.
"A sharp upward trajectory in debt levels looks all but certain."
It comes as many European countries continue varying types of lockdowns, many forcing non-essential businesses to close and citizens to remain at home aside from a small list of exceptions.
Italy and Spain - having been among the worst-affected by coronavirus - are likely to face the biggest challenges in revitalising their economies.
Italy had already been struggling economically, having been warned in June last year that its level of national debt was more than twice that allowed by European Union budget rules.
Developing countries are also at risk - the least equipped to handle the pandemic and its economic fallout.
Last week the managing director of the World Bank told Sky News that the coronavirus could wreak devastation on those parts of the world.
Debt in emerging markets has risen by more than $3.5trn (£2.8trn), bringing total debt in these countries to more than $71trn (£57trn).
This means the debt in emerging markets is 220% of GDP, up from 147% in 2007.
On 26 March, the G20 pledged more than $5trn (£4trn) for the global economy and on Thursday the European Central Bank took action to support the 19 economies of the eurozone.
The ECB said it was temporarily easing collateral rules for lending to banks, allowing banks to use a wider range of financial assets as collateral for short-term central bank credit.
This will make it easier for banks to keep lending to companies, leaving them with less reason to restrict credit by calling in or not giving loans.