Brooklyn, New York. The US was the only country in the IIF's study to record an increase in total debt during the third quarter of 2022. Photo: NYC & Company
Brooklyn, New York. The US was the only country in the IIF's study to record an increase in total debt during the third quarter of 2022. Photo: NYC & Company
Brooklyn, New York. The US was the only country in the IIF's study to record an increase in total debt during the third quarter of 2022. Photo: NYC & Company
Brooklyn, New York. The US was the only country in the IIF's study to record an increase in total debt during the third quarter of 2022. Photo: NYC & Company

Global debt ratio declines but emerging markets return to record highs, IIF says


Deena Kamel
  • English
  • Arabic

The global ratio of debt to gross domestic product fell for a sixth consecutive quarter in the July-September period to 343 per cent of GDP but the International Institute of Finance said emerging markets had bucked this trend as their ratios returned to record highs.

The world's debt-to-GDP ratio is now 20 percentage points lower than its peak in the first quarter of 2021, helped by high inflation that has been particularly strong after a surge in commodity prices as a result of the Ukraine war, the IIF said in its latest Global Debt Monitor report.

The global debt pile declined by $6.4 trillion in the third quarter to $290 trillion due to a strong US dollar and high interest rates that both weighed on bond issuances, the IIF said.

This is more than $15 trillion below its record of $306 trillion in the first quarter of 2022.

The drop is underscored by the strengthening greenback, which makes loans denominated in other currencies look smaller when they are measured using the US dollar.

“With central banks still struggling to contain the inflation shock, higher price levels have temporarily improved the debt servicing capacity of many borrowers: corporate pricing power has supported earnings growth while sovereigns have benefitted from higher consumption tax revenues,” the Washington-based institute said.

Inflation has continued to push interest rates and funding costs higher globally while governments have ramped up spending to shore up economies.

The International Monetary Fund expects global inflation to peak in late 2022 at 8.8 per cent and to remain elevated for longer than previously expected, before decreasing to 4.1 per cent by 2024. The fund estimates inflation at 6.5 per cent in 2023.

“With global funding conditions tightening rapidly, borrower appetite and [the] ability to tap [into] international debt markets have declined significantly this year,” the institute said.

“The ensuing sharp slowdown in debt issuance — coupled with the strength of the greenback — has reduced the US dollar value of outstanding global debt.”

The drop in debt levels during the third quarter was sharper in mature markets, driven by Japan, the UK, France and Canada.

The US was the only country in the IIF's study to record an increase in total debt during the three-month period.

Across emerging markets, China, Korea and Russia had the largest declines, the IIF said.

Emerging markets

The debt-reduction impact of inflation has not been enough to curb debt ratios in many emerging markets, the IIF report showed.

Persistently large budget deficits — coupled with subdued economic growth — have brought the emerging markets' debt-to-GDP ratio back to its record high of 254 per cent, last registered in the first quarter of 2021, the institute said.

Emerging market government debt topped 65 per cent of GDP in the third quarter, and emerging market financial sector debt surpassed 40 per cent of GDP as banks accelerated borrowing, it said.

For many high-yield borrowers this year, the median yield spread is about 400 basis points higher than a year ago but the upswing in spreads has been more limited for investment-grade borrowers, the IIF said.

“In the face of tightening global financing conditions, access to international markets has become even more challenging for many high-yield borrowers this year,” the IIF said.

“The global sovereign interest bill is set to increase rapidly, notably for sub-Saharan Africa but also in EM Europe.”

The interest rates increases imposed by central banks in response to high inflation rates will have a disproportionate impact on lower-income households and small companies, given their high reliance on funding with a short maturity, the IIF said.

High interest rates will also increase debt-servicing costs for heavily indebted businesses and governments.

“Higher funding costs represent a major source of risk for financial and social stability across countries with highly indebted sectors,” the IIF said.

“With fiscal deficits remaining higher than pre-pandemic levels in many countries, government debt servicing costs are expected to surge in [the] G7, EM [emerging markets in] Europe and sub-Saharan Africa,” the report said.

Higher borrowing costs could particularly undermine already fragile debt situations in sub-Saharan African countries, leaving many nations struggling to source urgently needed climate finance, it said.

“The implications could be even more severe for those that lack credible investor relation programmes and debt disclosure practices,” the IIF warned.

Benefits of first-time home buyers' scheme
  • Priority access to new homes from participating developers
  • Discounts on sales price of off-plan units
  • Flexible payment plans from developers
  • Mortgages with better interest rates, faster approval times and reduced fees
  • DLD registration fee can be paid through banks or credit cards at zero interest rates
UNpaid bills:

Countries with largest unpaid bill for UN budget in 2019

USA – $1.055 billion

Brazil – $143 million

Argentina – $52 million

Mexico – $36 million

Iran – $27 million

Israel – $18 million

Venezuela – $17 million

Korea – $10 million

Countries with largest unpaid bill for UN peacekeeping operations in 2019

USA – $2.38 billion

Brazil – $287 million

Spain – $110 million

France – $103 million

Ukraine – $100 million

 

ESSENTIALS

The flights

Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.

The hotels

Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.

The tours

A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages. 

One in nine do not have enough to eat

Created in 1961, the World Food Programme is pledged to fight hunger worldwide as well as providing emergency food assistance in a crisis.

One of the organisation’s goals is the Zero Hunger Pledge, adopted by the international community in 2015 as one of the 17 Sustainable Goals for Sustainable Development, to end world hunger by 2030.

The WFP, a branch of the United Nations, is funded by voluntary donations from governments, businesses and private donations.

Almost two thirds of its operations currently take place in conflict zones, where it is calculated that people are more than three times likely to suffer from malnutrition than in peaceful countries.

It is currently estimated that one in nine people globally do not have enough to eat.

On any one day, the WFP estimates that it has 5,000 lorries, 20 ships and 70 aircraft on the move.

Outside emergencies, the WFP provides school meals to up to 25 million children in 63 countries, while working with communities to improve nutrition. Where possible, it buys supplies from developing countries to cut down transport cost and boost local economies.

 

The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.

Read part three: the age of the electric vehicle begins

Read part two: how climate change drove the race for an alternative 

Read part one: how cars came to the UAE

While you're here
WOMAN AND CHILD

Director: Saeed Roustaee

Starring: Parinaz Izadyar, Payman Maadi

Rating: 4/5

WandaVision

Starring: Elizabeth Olsen, Paul Bettany

Directed by: Matt Shakman

Rating: Four stars

In numbers: China in Dubai

The number of Chinese people living in Dubai: An estimated 200,000

Number of Chinese people in International City: Almost 50,000

Daily visitors to Dragon Mart in 2018/19: 120,000

Daily visitors to Dragon Mart in 2010: 20,000

Percentage increase in visitors in eight years: 500 per cent

BEACH SOCCER WORLD CUP

Group A

Paraguay
Japan
Switzerland
USA

Group B

Uruguay
Mexico
Italy
Tahiti

Group C

Belarus
UAE
Senegal
Russia

Group D

Brazil
Oman
Portugal
Nigeria

How England have scored their set-piece goals in Russia

Three Penalties

v Panama, Group Stage (Harry Kane)

v Panama, Group Stage (Kane)

v Colombia, Last 16 (Kane)

Four Corners

v Tunisia, Group Stage (Kane, via John Stones header, from Ashley Young corner)

v Tunisia, Group Stage (Kane, via Harry Maguire header, from Kieran Trippier corner)

v Panama, Group Stage (Stones, header, from Trippier corner)

v Sweden, Quarter-Final (Maguire, header, from Young corner)

One Free-Kick

v Panama, Group Stage (Stones, via Jordan Henderson, Kane header, and Raheem Sterling, from Tripper free-kick)

Updated: November 23, 2022, 10:21 AM`