The global debt level rose to a new record last year
The global debt level rose to a new record in 2020. Governments must now take care of “calibrating” spending. The International Monetary Fund said this in a report.
World debt, including public and private loans, rose 14 percent to a record $ 226 trillion (€ 195.59 trillion) in 2020. That’s an increase of $ 27 trillion in a single year, far exceeding its cumulative increase of $ 20 trillion in two years during the global financial crisis in 2008 and 2009, the report showed.
About 90 percent of last year’s debt increase comes from advanced economies and China, as developing and transition economies have much worse access to financial markets for their spending needs. And they are also more vulnerable to a possible rise in interest rates, noted Vitor Gaspar, the IMF’s head of fiscal policy.
“The big gap between vaccine availability, climate change and large funding disparities are global issues that require global action,” he said, warning that low-income countries face challenges that could slow their growth prospects for many years to come.
The pandemic of the new coronavirus has exacerbated the “previously significant” funding disparities faced by low-income countries before the crisis, Gaspar said emerging economies are more vulnerable to changes in global interest rates.
Their borrowing costs will rise faster as central banks begin to remove monetary stimulus received during the pandemic.
Global government debt has stabilized at a record $ 88 trillion, just below 100 percent of gross domestic product (GDP), and is expected to decline only gradually, Gaspar said.
At the same time, the fiscal and economic development of individual countries varies greatly depending on the vaccination rate against Covid-19, the stage of the pandemic and the ability of governments to obtain low-interest loans.
There is a risk that private debt will become public debt, so “countries will have to calibrate fiscal policy based on their own unique circumstances,” Gaspar said.
Massive government support has helped ease the blow that the pandemic has inflicted on economies. In advanced economies, public spending on the virus is shifting from the immediate crisis to green and digital transformation and greater “economic inclusiveness”.