Global debt at record and unsustainable $188-trillion, says IMF

The global debt load has surged to a new record, equivalent to more than double the world’s economic output, International Monetary Fund (IMF) chief Kristalina Georgieva warned on Thursday.

While private-sector borrowing accounts for the vast majority of the total, the rise puts governments and individuals at risk if the economy slows, she said.

“Global debt — both public and private — has reached an all-time high of $188-trillion. This amounts to about 230% of world output,” Georgieva said in a speech to open a two-day conference on debt. That is up from the previous record of $164-trillion in 2016, according to IMF figures.

While interest rates remain low, borrowers can use debt to make investments in productive activities or weather a bout of low commodity prices. But it can become “a drag on growth”, she said. “The bottom line is that high debt burdens have left many governments, companies, and households vulnerable to a sudden tightening of financial conditions.” 

Corporate debt accounts for about two-thirds of the total, but government borrowing has risen as well in the wake of the global financial crisis.

“Public debt in advanced economies is at levels not seen since the Second World War,” she warned. And “emerging-market public debt is at levels last seen during the 1980s debt crisis”.

She called for steps to ensure “borrowing is more sustainable”, including making lending practices more transparent and preparing for debt restructuring with “non-traditional lenders” — an apparent reference to China, which has become a major creditor to developing nations, including in Africa.

Georgieva warned in October that the global economy is experiencing a “synchronised slowdown” that would worsen if governments fail to resolve trade conflicts and support growth.

She said trade tensions have “substantially weakened” manufacturing and investment activity worldwide. “There is a serious risk that services and consumption could soon be affected,” she said.

The cumulative effect of trade conflicts could mean a $700bn reduction in global GDP output by 2020, or about 0.8%, she said, previewing new research to be unveiled during the IMF and World Bank annual meetings next week.

AFP