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Emerging Debt Rises, Despite Fall in Global Loans

(Bloomberg) – Emerging markets are accumulating more and more debt burdens, despite the fact that the indebtedness of advanced economies, driven by the pandemic, shows some signs of stabilization.

Total indebtedness by emerging market companies and governments increased slightly in the first quarter to a record $ 86 trillion and has increased by about $ 11 trillion since the end of 2019, according to the Institute of International Finance (IIF). in English). The increase came even though the total amount of global debt actually contracted for the first time in 10 quarters, to fall by $ 1.7 trillion to about $ 289 trillion.

Global debt now accounts for just over 360% of the world economy after governments rushed to increase spending last year to withstand the impact of lockdowns from the pandemic, according to IIF estimates. Although many developed countries show signs of being able to emerge from the crisis as vaccinations increase, for emerging economies the reality is different, since, with few exceptions, the rate of vaccination is much slower and virus cases do not they yield. It is the so-called K-shaped rally, where the richest pairs advance and the rest run the risk of being left behind.

Emerging market debt increased by approximately $ 600 billion in the first quarter of this year, driven by the private sector, the IIF said. On the other hand, government debt fell by around US $ 6.5 billion last quarter, marking the first drop since the pandemic began. However, public debt has increased by about US $ 3.3 trillion compared to a year ago and, relative to the size of emerging economies, it has increased to about 60%, compared to 52% during the last three months of 2019.

While the projected recovery in economic activity could help some governments reduce their debt-to-gross domestic product ratios, the slow pace of vaccinations in developing economies could lead to further accumulation of debt, said Emre Tiftik, director of sustainability research of the IIF.

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There are questions about when and how developing nations might start thinking about curbing lending, but it’s not clear that such a moment will come anytime soon for many countries, especially given revenues that are under pressure from closures.

The “debt-to-GDP ratio will go down for governments, but it’s not going to happen any time soon, it’s not going to happen everywhere, and it’s not going to happen without fiscal adjustment,” said James McCormack, managing director and global ratings head. sovereigns of Fitch Ratings, in a webinar organized by the IIF.

Original Note: Emerging-Market Debt Load Jumps, Even as Global Borrowing Slows

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