The global debt burden has retreated for the second year in a row, but remains above its already-high pre-pandemic level, the International Monetary Fund’s (IMF) latest data showed.

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The total global debt stood at 238 percent of global gross domestic product (GDP) in 2022, 9 percentage points higher than in 2019. In US dollar terms, debt amounted to $235 trillion, or $200 billion above its level in 2021, the IMF said in a blog on the global debt database released on Wednesday.

“Policymakers will need to be unwavering over the next few years in their commitment to preserving debt sustainability,” the fund warned.

The IMF wants governments to take urgent steps to help reduce debt vulnerabilities and reverse long-term debt trends. "For private sector debt, those policies could include vigilant monitoring of household and non-financial corporate debt burdens and related financial stability risks. For public debt vulnerabilities, building a credible fiscal framework could guide the process to balance spending needs with debt sustainability,” it said.

IMF GLOBAL DEBT DATABASE

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Despite the economic growth rebound from 2020 and much higher-than-expected inflation, public debt remained stubbornly high, IMF said.

Fiscal deficits kept public debt levels elevated in 2022, said the IMF, as many governments spent more to boost growth and respond to food and energy price spikes even as they ended pandemic-related fiscal support. As a result, public debt declined by just 8 percentage points of GDP over the last two years, offsetting only about half of the pandemic-related increase, said the IMF. Private debt, which includes household and non-financial corporate debt, declined at a faster clip, dropping 12 percentage points of GDP. Even then, the decline was not enough to erase the pandemic surge, the fund said.

“Before the pandemic, global debt-to-GDP ratios had risen for decades. Global public debt tripled since the mid-1970s to reach 92 percent of GDP (or just above $91 trillion) by the end of 2022. Private debt also tripled to 146 percent of GDP (or close to $144 trillion), but over a longer time span between 1960 and 2022,” IMF pointed out.

China played a central role in increasing global debt in recent decades, the IMF said in its blog, as borrowing outpaced economic growth.

While China’s debt as a share of GDP has risen to about the same level as in the United States, in dollar terms China’s total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion), as per the report.

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As for nonfinancial corporate debt, China’s 28 percent share is the largest in the world, the report showed.

Debt in low-income developing countries also rose significantly in the last two decades, albeit from lower initial levels.

However, for the low-income developing countries, private debt especially, remains on average relatively low compared to advanced and emerging economies. But the pace of their increases since the global financial crisis has created challenges and vulnerabilities, IMF pointed out.

“More than half of low-income developing countries are in or at high risk of debt distress, and about one-fifth of emerging markets have sovereign bonds trading at distressed levels,” IMF’s latest global debt report showed.

“For low-income developing countries, improving the capacity to collect additional tax revenues is key... For those with unsustainable debt, a comprehensive approach that encompasses fiscal discipline, as well as debt restructuring under the Group of Twenty Common Framework—the multilateral mechanism for forgiving and restructuring sovereign debt—when applicable, is also needed,” said the IMF.

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First Published:Sept 13, 2023 7:25 PM IST