Covid uncertainties drove global debt to record high in 2020
The global debt pile increased to $226 trillion at the end of 2020 as sovereign, non-financial corporations and households continued to borrow in the face of pandemic-driven uncertainties, according to the International Monetary Fund.
Public and private sector borrowings last year jumped about 13.6 per cent, or $27 trillion, from 2019 and the pace of the increase has stoked concerns of financial stability risks, said Vitor Gaspar, director of the IMF’s Fiscal Affairs Department.
“The level and the pace of increase are record highs,” Mr Gasper said before the IMF’s Fiscal Monitor report release. “We know that high and rising debts increase risks to financial stability and public finances.”
Globally, governments and central banks have poured in about $25tn in monetary and fiscal stimulus support since the onset of the pandemic to boost economies, strengthen banks and stabilise financial markets.
Sovereigns borrowed extensively in a climate of historic low interest rates, but governments are still looking at widening fiscal deficits amid an uneven global economic recovery and need to borrow more to bridge budget gaps.
Countries with a “high credibility fiscal framework” benefit from better bond market access and lower interest rates on sovereign bonds, Mr Gasper said.
“A strong message from the fiscal monitor is that fiscal credibility pays off,” he said. “That’s a precious asset to have in uncertain and difficult times like Covid-19.”
The global economy, which last year tipped into its deepest recession since the Great Depression of the 1930s, is now expected to grow 5.9 per cent in 2021, a 0.1 percentage point lower than the IMF’s July estimate.
The rapid spread of the more virulent Delta strain of Covid-19 and inequitable access to vaccines is threatening the pace of the economic recovery, the fund said.
Although the international community provided critical support to help alleviate fiscal vulnerabilities of low-income countries, there is much more that can be done, the IMF said.
The IMF’s rapid financing facilities and the G20 Debt Service Suspension Initiative eased fiscal pressure on some of the poorest nations that were struggling to find resources to combat the pandemic.
The IMF has also provided liquidity through special drawing rights of $650bn, “but much more could be achieved if rich countries would make part of their resources available to the developing world”, Mr Gasper said.
“By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth.”