COVID-related global debt surge

John Kavanagh

The global debt-to-GDP ratio surged by 35 percentage points in 2020 to more than 355 of global GDP, according to new research.

The latest Institute of International Finance Global Debt Monitor shows that pandemic responses around the world added US$24 trillion to global debt in 2020, taking it to a new high of US$281 trillion.

Government debt accounted for more than half of the increase.

The IIF sampled 61 developed and emerging economies, tracking movements in government, corporate and household debt.

The IIF said the increase in debt was well beyond the rise seen during the global financial crisis, when the increase in the global debt-to-GDP ratio was 10 percentage points.

“With global debt issuance still running above pre-COVID levels, supported by still-low borrowing costs, the rise in global debt ratios is expected to be relatively modest this year. The projected rebound in GDP will help,” IIF said.

The countries recording the biggest increase in debt-to-GDP last year were France, Spain and Greece – all with increases above 50 percentage points.

Australia comes in at number 20.

One significant trend last year was a big fall in business bankruptcies in all but a few countries in the survey (China was a notable exception).

IIF cautioned that “premature withdrawal of supportive government measures could mean a surge in bankruptcies and a new wave of non-performing loans, with financial stability implications for the banking sector.

“However, sustained reliance on government support could pose systemic risks to the financial system as well. A prolonged period of loan guarantees, coupled with sustained low interest rates, could well encourage still more debt accumulation by the weakest and most indebted corporates.”