Global debt surges nine-fold to $52tn in the past four years, IIF says

Total debt jumped by $15tn more in the first three quarters of this year

Global debt surged more than nine-fold to $52 trillion in the past four years as governments and corporates continue to borrow to meet spending requirements, according to the latest report from the Institute of International Finance.

This compares with a $6tn rise recorded during 2012 to 2016.

Out of the $52tn debt, about $15tn was recorded in the first three quarters of 2020 alone in the wake of Covid-19 economic crisis, the report said. Total debt currently stands at more than $272tn.

Since the outbreak of the pandemic, governments have deployed over $12tn to mitigate the impact of Covid-19.

"The monetary policy reaction has been unprecedented in scale in many countries, including emerging markets, in contrast to previous episodes of financial turmoil, many EMs have cut policy rates and introduced QE [quantitative easing] programmes despite substantial currency depreciation and a sizable retrenchment in portfolio inflows," the report said. "These synchronised policy measures have helped fuel a massive wave of borrowing, particularly by sovereigns and corporates."

While the downward spiral in interest rates globally since the mid-1980s has made debt rollover relatively easier for governments, "net spending on interest has been on an upward trend in emerging markets".

“Given widespread Covid-related revenue losses this year, the ratio of government interest payments to revenues reached a near-record high of 10 per cent in emerging markets. Looking ahead, this ratio is expected to remain above 8 per cent, largely driven by Turkey, India, South Africa, and the Philippines.”

The coronavirus pandemic has hit the margins of small businesses while earnings estimates for larger corporates hover around 20 per cent below pre-Covid levels. Governments have provided trillions of dollars in fiscal and monetary aid to these businesses to cushion the impact of the pandemic.

“Accommodative policy measures to date have been successful in limiting the potential surge in corporate insolvencies. In Europe, for example, there has been a marked decline in the number of firms filing for insolvency.”

However, the recent surge in Covid-19 cases has darkened the outlook, “given high and rising corporate debt levels”.

“At nearly $80tn, the mountain of global corporate debt stands at 103 per cent of global GDP, versus 92 per cent in the fourth quarter of 2019. As a percentage of corporate revenues, the build-up in corporate debt has been even more striking, highlighting the big difference in the debt burdens of large and small firms.”

With a debt-to-ebitda ratio of almost nine times, small-cap firms are now much more indebted than large-cap corporates, it said.