IMF warns of an unfolding global debt crisis

The IMF said in a blog released with its inaugural Global Debt Monitor that total public and private debt decreased by 10 percentage points to 247% of global gross domestic product (GDP) in 2021 from its peak of 257% in 2020. That compares to around 195% of GDP in 2007, before the global financial crisis. In dollar terms, global debt continued to rise, although at a much slower rate, reaching a record $235 trillion last year.

The global lender said private debt, which includes non-financial corporate and household obligations, drove the overall reduction, decreasing by 6 percentage points to 153% of GDP in 2021, citing data for 190 countries. The drop of 4 percentage points for public debt, to 96% of GDP, was the largest such drop in decades, according to the IMF.

The unusually large swings in debt ratios - or "global debt rollercoaster" - were caused by the economic rebound from COVID-19 and the ensuring swift rise in inflation, the IMF said. Debt dynamics varied widely across country groups. Advanced economies saw the biggest drop in debt, with both public and private debt falling 5% of GDP last year, followed by similar results in emerging markets, excluding China.

Nevertheless, low-income countries saw their total debt ratios continue to increase in 2021, driven by higher private debt, with total debt reaching 88% of GDP.

There are growing concerns about the ability of low- and middle-income countries to repay their debts, with an estimated 25% of emerging market countries and over 60% of low-income countries either in or near debt distress.

In a blog post released Monday, IMF fiscal affairs director Vitor Gaspar, overseer of the IMF's Fiscal Monitor Paulo Medas and senior economist Roberto Perrelli warned it would become increasingly difficult to manage the high levels of debt if the outlook continued to deteriorate and borrowing costs rose further.

High inflation levels continued to help reduce debt ratios in 2022, but fiscal spending would likely increase if inflation becomes persistent, which could lead to higher premiums, they said.

Gaspar, Medas and Perrelli wrote that governments should pursue fiscal policies that help reduced inflationary pressures now and debt vulnerabilities over the long term, while continuing to support the most vulnerable.

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