Global debt levels decline for the first time in two and a half years: IIF

By Karin Strohecker

LONDON (Reuters) – World debt levels fell for the first time in two and a half years in the first quarter, driven by a decline in developed markets, but borrowing in developing economies hit a new record, the Institute of International Finance (IIF).

Total global debt fell by $ 1.7 trillion, to $ 289 trillion, and finance accounted for almost half of that decline, while government borrowing continued to rise.

By contrast, emerging market debt levels rose by $ 600 billion to a new record of more than $ 86 trillion, albeit at a significantly slower pace in the previous three quarters. That was due to a slower rise in emerging public debt, largely due to fiscal constraints.

“Emerging markets simply have relatively less fiscal capacity,” said Emre Tiftik, IIF’s director of sustainability research. “With emerging market government debt generally stable, the financial and corporate nonfinancial sectors have been the main drivers of debt accumulation.”

Despite lower financial burden levels, global debt ratios continued to rise as economies struggled to recover to pre-pandemic thresholds in many parts of the world.

Globally, debt-to-GDP rose just 1 percentage point in the first quarter of 2021 to just over 360%, and indices are expected to decline slightly this year as emissions fell below previous levels. to COVID-19 and the projected economic recovery.

Last year, the global debt-to-GDP ratio increased by more than 36 percentage points, the IIF said.

Among emerging market sovereign debt, the debt-to-GDP ratio grew to about 60% from 52% before the pandemic. While short-term vulnerabilities eased, governments still felt pressure from continued lockdowns and slow vaccination progress in many economies, the institution said.

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“While global financing conditions remain strong support, pandemic-related spending increases and revenue losses have made debt service a major burden for many emerging markets, including the Philippines, South Africa, India. , Indonesia and Turkey, “Tiftik said.

Emerging markets were also under increasing pressure to accelerate their transition to low-carbon economies and, failing to do so, could increase government borrowing costs.

“It is estimated that a 10% increase in climate vulnerability will accentuate the sovereign spreads of emerging markets by 100 basis points, on average,” calculated the IIF.

(Reporting by Karin Strohecker. Edited in Spanish by Janisse Huambachano)

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