Global Debt Increased to $226trn in 2020

Ndubuisi Francis in Abuja

Global debts have estimated to be at $226 trillion in 2020, rising by 28 percentage points to 256 per cent of gross domestic product (GDP), the latest update of the International Monetary Fund (IMF) ‘Global Debt Database’, has revealed.

This was $28 trillion higher than the $198 trillion recorded in 2019.

According to the report, China alone accounted for 26 per cent of the global debt surge.

Emerging markets (excluding China) and low-income countries like Nigeria accounted for small shares of the rise in global debt, around $1-$1.2 trillion each, mainly due to higher public debt.

Nevertheless, both emerging markets and low-income countries, according to the report, were also facing elevated debt ratios driven by the large fall in nominal GDP in 2020.

Public debt in emerging markets reached record highs, while in low-income countries it rose to levels not seen since the early 2000s, when many were benefiting from debt relief initiatives.

Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 per cent of GDP.

Private debt from non-financial corporations and households also reached new highs.

The report noted that debt increases were particularly striking in advanced economies, where public debt rose from around 70 per cent of GDP, in 2007, to 124 per cent of GDP, in 2020. Private debt, on the other hand, rose at a more moderate pace from 164 to 178 percent of GDP, in the same period.

Public debt now accounts for almost 40 percent of total global debt, the highest share since the mid-1960s.

The accumulation of public debt since 2007, was largely attributable to the two major economic crises governments had faced—first the global financial crisis, and then the COVID-19 pandemic.

Debt dynamics, however, differed markedly across countries.

According to the IMF report, advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020.

“These countries were able to expand public and private debt during the pandemic, thanks to low interest rates, the actions of central banks (including large purchases of government debt), and well-developed financial markets.

“But most developing economies are on the opposite side of the financing divide, facing limited access to funding and often higher borrowing rates.

“In advanced economies, fiscal deficits soared as countries saw revenues collapse due to the recession and put in place sweeping fiscal measures as COVID-19 spread,” it added.

The report stated that public debt rose 19 percentage points of GDP in 2020, an increase like that seen during the global financial crisis, in 2008 and 2009.

Private debt, however, jumped by 14 percentage points of GDP in 2020, almost twice as much as during the global financial crisis, reflecting the different nature of the two crises.

During the pandemic, governments and central banks supported further borrowing by the private sector to help protect lives and livelihoods.

The Global Debt Database noted that during the global financial crisis, the challenge was to contain the damage from excessively leveraged private sector.

Emerging markets and low-income developing countries faced much tighter financing constraints, but with large disparities across countries.