Printed in the FT on Oct 6 2016
by: Claire Jones in Washington
The world is $152tn in the red — a record-breaking level of debt, according to the International Monetary Fund.
The figure, more than two times the size of the global economy, comes from the fund’s latest Fiscal Monitor and is, officials claim, the most accurate measure of the world’s debt burden ever calculated.
“Global debt is at record highs and rising,” said Vitor Gaspar, director of fiscal affairs at the fund.
The figures highlight the apparent paradox between ultra-low interest rates imposed by many central banks in an attempt to encourage borrowing and boost sluggish economies, and the dangers that arise from excessive debt levels.
While the IMF did not call for rapid prepayment of debt, it warned that in some countries the unprecedented level of borrowing by companies was too high.
“Excessive private debt is a major headwind against the global recovery and a risk to financial stability,” said Mr Gaspar. “The Fiscal Monitor shows that rapid increases in private debt often end up in financial crises. Financial recessions are longer and deeper than normal recessions.”
Levels of borrowing have substantially outpaced global growth in recent years, rising from 200 per cent of gross domestic product in 2002 to 225 per cent last year.
While two-thirds of the debt is held by the private sector, governments’ borrowing requirements have also ballooned since the global financial crisis.
Nevertheless, officials at the fund — which is holding its annual meetings with the World Bank in Washington this week — want governments to act to boost growth.
Calls for what are often dubbed “growth-friendly fiscal policies” have grown from the IMF and other multilateral institutions as concern has mounted that the world’s central banks have been left with too much of the burden to lift the global economy.
Mr Gaspar emphasised that debt levels were not high everywhere. “The sharp diversity across countries is a reminder of the need to tailor policy diagnosis and prescription to the specific conditions prevailing in each country,” he said.
Most of the debt is concentrated in the world’s richest economies, although China has markedly increased borrowing in recent years. While low income countries have relatively low levels of debt, many have sharply increased borrowing in recent years.
The fund also said that companies would help raise growth if they shrank their balance sheets by reducing their size, although it acknowledged the process would take time.
He added that countries entering a financial recession with a weak fiscal position were likely to lose more growth than countries that manage to counter shocks by spending more.
Central banks have cut interest rates to all-time lows and engaged in mass bond buying in response to the global financial crisis. Although most economists think their actions have helped, there is also a broad consensus that the economy will remain below par unless governments do more.
The debt burden figure is based on data collected by the IMF and the Bank for International Settlements from 113 countries, which together make up more than 94 per cent of global GDP. Fund officials have worked on the project over the past year