This is according to the Institute of International Finance's (IIF) Global Debt Monitor, which says global debt is now $45 trillion higher than its pre-pandemic level and is expected to continue rising rapidly.
Ageing populations and rising healthcare costs continue to put spending pressure on governments, while "heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term", according to IIF researchers.
Rating agencies Moody’s, S&P and Fitch have also warned that demographic changes are impacting governments’ credit ratings, The Financial Times reports. Significant policy reforms to address fiscal matters or ageing populations in many nations are needed if government debt is to remain sustainable, according to Marko Mrsnik, Lead Sovereign Analyst at S&P Global Ratings.
> The IIF report also says that rapid rises in interest rates have impacted the balance sheets of some banks, and the resulting tighter lending practices among smaller banks would hit some businesses and households harder.
> Higher interest rates are likely to have consequences for property-related debt,as well as impact the sustainability of sovereign and corporate debt, according to the World Economic Forum's latest Chief Economists Outlook.
Higher interest rates are most likely to have consequences for property-related debt.
Image: World Economic Forum, Chief Economists Outlook: May 2023
According to the IIF, 75% of emerging markets saw an increase in debt levels in dollar terms in the first quarter, with the overall figure crossing $100 trillion for the first time. China, Mexico, Brazil, India and Turkey posted the biggest increases.
The IIF said the combination of such high debt levels and rising interest rates ... to a closely-watched report from the Institute of International Finance.
@RobinBrooksIIF. Chief Economist ... Washington, DC iif.com/people/robin-b… Joined July 2017 ... chief economist del Institute of International Finance,.
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This is according to the Institute of International Finance's (IIF) Global Debt Monitor, which says global debt is now $45 trillion higher than its ...
The World Economic Forum · Gabi Thesing · 1 day ago
It’s now $45 trillion higher than its pre-pandemic level and is expected to continue growing rapidly, a top trade body has warned
The global debt pile increased by $8.3 trillion in the first quarter of the year to a near-record high of $305 trillion amid an aggressive tightening of monetary policy by central banks, the Institute of International Finance (IIF) has revealed.
According to its Global Debt Monitor report on Wednesday, the reading is the highest since the first quarter of last year and the second-highest quarterly reading ever.
The IIF warned that the combination of such high debt levels and rising interest rates had pushed up the cost of servicing that debt, prompting concerns about leverage in the financial system.
“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms,” the IIF said.
Despite concerns over a potential credit crunch following recent turmoil in the banking sectors of the United States and Switzerland, government borrowing needs to remain elevated, the finance industry body stressed.
According to the report, aging populations and rising healthcare costs continue putting strain on government balance sheets, while “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” which would potentially affect the credit profile of both governments and corporate borrowers.
“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the IIF cautioned.
The report showed that total debt in emerging markets hit a new record high of more than $100 trillion, around 250% of GDP, up from $75 trillion in 2019. China, Mexico, Brazil, India and Türkiye were the biggest upward contributors, according to the IIF.
As for the developed markets, Japan, the US, France and the UK posted the sharpest increases over the quarter, it said"
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"Just as individuals or companies may make purchases on credit or take out a loan to boost their finances, national governments often borrow money to further their country's growth or well-being. When this happens, the money borrowed becomes part of that country's national debt.
Stated simply, national debt is the combined debt a country's government owes one or more lenders, such as other governments, various corporations, or even private individuals (such as with treasury bonds).
But which countries have the world's highest national debt? The answer to that question merits a bit of explanation.
In terms of raw dollars, the country with the highest debt in the world is unquestionably the United States, whose national debt is more than twice that of any other country. However, the dollar amount of a country's debt is usually considered not by itself, but in relation to the country's overall gross domestic product (GDP)—which represents the country's ability to pay back the debt.
Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP. The Japanese economy experienced stagnation during the 1990s, which led to the government launching several initiatives, such as selling bonds and bailing out banks and insurance companies with low-interest credit, to help reboot the struggling economy in the 2000s. Banking institutions had to be audited, consolidated, or even nationalized.
While these actions arguably salvaged Japan's economy, they also added greatly to the country's national debt. Since that time, additional concerns such as the Great Recession of 2008, the 2011 Fukushima nuclear disaster, and the COVID-19 pandemic have complicated efforts to combat the country's debt.
United States
The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%. The United States' government's spending exceeds its income most years, and the US has not had a budget surplus since 2001. Perhaps surprisingly, the countries to which the US is most in debt are Japan, which itself has significant debt, and China, which is often viewed as the United States' greatest economic competitor.
China
China’s national debt is currently over 10 trillion USD—however, because of China's massive economy, the country's debt is only 68.06% of its GDP. China's current debt level is a significant increase from 2014, when the national debt was 41.54% of the country's GDP. An International Monetary Fund report from 2015 stated that China’s debt was relatively low, and many economists have dismissed worries over the size of the debt both in its overall size and relative to China’s GDP. China currently has the world’s second-largest economy and the largest population, with approximately 1,425,821,667 people.
Russia’s debt ratio was one of the lowest in the world at 16.99% of its GDP in 2021—though the country's war with Ukraine, which began in early 2022, will likely have some effect on this ratio. Russia is usually one of the ten least-indebted countries in the world. Russia’s debt is currently at a total of just over 302 billion USD. Most of Russia’s external debt is private.
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