The IMF stated this Wednesday that the global debt burden fell in 2022, for the second consecutive year, although it remains above its already high pre-pandemic level. The latest update to its “Global Debt Database” notes that total debt amounted to 238% of global gross domestic product (GDP) last year, 9 percentage points higher than in 2019, before the coronavirus pandemic paralyzed the worldwide economy.
In US dollars, the debt in 2022 amounted to 235 trillion and, despite the percentage drop, the figure is 200 billion above its level in 2021, as global GDP increased faster than the level of global debt. Despite the decline, the IMF stated, debt “remains high and debt sustainability remains a concern.”
“The authorities must be unwavering in this regard over the coming years in their commitment to preserving debt sustainability,” the fund added in an article published this Wednesday.
Despite a rebound in economic growth starting in 2020 and much higher-than-expected inflation, “public debt remained stubbornly high” as many governments “spended more to boost growth and respond to rising commodity prices.” Food and energy.”
As a result, public debt fell by just 8 percentage points of GDP over the past two years, a figure that offsets only half of the pandemic-related increase, the IMF notes.
China, with a central role
Private debt, which includes household and non-financial corporations, declined at a faster pace and fell by 12 percentage points of GDP, although this drop was not enough to offset the increase that occurred in the pandemic. Before the crisis derived from the coronavirus, the global debt/GDP ratio had increased for decades, recalls the IMF.
Public debt more than $91 trillion) by the end of 2022. Private debt also tripled to 146% of GDP (or about $144 trillion), but over a longer period, between 1960 and 2022.
China, precisely, played a central role in the increase in global debt in recent decades, to the extent that indebtedness exceeded economic growth. China’s share of non-financial corporation debt is 28%, the largest in the world.
The debt of low-income developing countries has also increased significantly over the past two decades, albeit from lower initial levels.
“While their debt levels, especially private debt, remain on average relatively low compared to advanced and emerging economies, the pace of their increases since the global financial crisis has created challenges and vulnerabilities,” the IMF said.
Thus, more than half of low-income developing countries are “in a situation of debt distress or at high risk of debt distress.” Therefore, governments need to take “urgent action to help reduce debt vulnerabilities and reverse long-term debt trends,” the IMF said.
For private sector debt, policies could include monitoring household and non-financial corporate debt burdens and risks to financial stability. Regarding public debt, governments must create “a credible fiscal framework” that balances spending needs with debt sustainability.