NEW YORK (MaceNews) – Global public and private borrowing accelerated dramatically in 2020 as the pandemic crushed revenues, but borrowing is likely to slow with recovery in 2021, an international banking group reported Wednesday.
Global public and private debt soared by $24 trillion in 2020 to a record $281 trillion — the 2020 gain alone accounted for more than a quarter of the $88 trillion rise in debt recorded over the last decade, the Institute for International Finance said.
The global debt-to-GDP ratio surged by 35 percentage points to top 355% of GDP in 2020. This compares with gains of 10 percentage points and 15 percentage points in the debt-to-GDP ratio in 2008 and 2009, respectively.
Mature markets saw the biggest increases in debt ratios last year outside the financial sector. The upswing was particularly sharp in Europe, with non-financial sector debt-to-GDP ratios in France, Spain, and Greece increasing 50 percentage points.
General government debt accounted for more than half of the total increase, with government debt in mature markets up more than $12 trillion in 2020 vs. a gain of $4.3 trillion in 2019. Government debt topped 105% of GDP—up from 88% in 2019.
The rapid debt build-up was most notable in Greece, Spain, the UK, and Canada. Switzerland was the only mature market economy in the 61-nation sample recording a modest decline in government debt ratio.
Balance sheet vulnerabilities in non-financial corporate sector have also increased significantly across many countries, particularly in France, IIF said.
EM debt/GDP topped 250% in 2020, up from 220% in 2019, with the biggest increases in Brazil, Korea, Turkey, UAE, and China. China saw the biggest rise in debt ratios (ex-financials), followed by Turkey, Korea, and the UAE. South Africa and India recorded largest increases in government debt ratios while the run-up in corporate debt was the largest in Peru and Russia.
Emerging market FX debt remained broadly stable at $8.6 trillion in 2020 as losses in EM currencies reduced firms’ incentives to borrow in foreign currency, IIF said. Debt build-up was relatively limited across frontier markets and low-income countries, in part reflecting the limited fiscal space to support firms and households.
IIF projected global government debt would rise by another $10 trillion this year and surpass $92 trillion by end 2021.
Other key points from the IIF report:
• Debt in mature markets is fast approaching $205 trillion—up from $183 trillion in 2019.
Debt outside the financial sector hit $214 trillion, up from $194 trillion in 2019.
• The non-financial corporates sector is increasingly reliant on government support—exacerbating pre-existing vulnerabilities
There are “few signs of stabilization—yet,” but the pace of borrowing is likely to slow in 2021, the IIF said.
“With global debt issuance still running above pre-COVID levels (supported by still-low borrowing costs), the rise in global debt ratios is expected to be relatively modest this year; the projected rebound in GDP will help. However, debt trajectories may vary significantly—the pace of vaccination differs considerably across countries, and difficulty in vaccine rollout could delay recovery, prompting further debt accumulation. For highly indebted countries facing ongoing fiscal constraints, difficulty in accessing and distributing vaccines could thus contribute to further debt strains, particularly in low-income countries.”
Non-financial private sector debt (household and corporate) hit 165% of GDP in 2020, up from 124% in 2019. Supportive government measures such as debt moratoria and loan guarantee programs pushed non-financial corporate debt some 8 percentage points higher, to 100% of GDP.
Household debt increased by 4%pts to 65% of GDP in 2020, in part reflecting loan moratoria and the resilience of residential real estate markets to the pandemic.
Financial corporates saw the largest annual jump in debt ratios in over a decade: Debt in the financial sector rose by over 5%pts to 86% of GDP in 2020. This was the largest increase since 2007 and the first annual rise since 2016.