The world’s debt level has swelled to a record $164 trillion, according to a new report issued by the International Monetary Fund (IMF).
In its semi-annual Fiscal Monitor Report, the IMF said that global public and private debt levels rose to 225% of international Gross Domestic Product (GDP) in 2016, the last year for which the IMF has calculated figures – a worrisome trend that could make it harder for countries to respond to the next recession and pay off debts if financing conditions tighten. The previous world debt level peak was reached in 2009 after the last international financial crisis, the Washington-based fund said on Wednesday.
“One hundred and sixty-four trillion is a huge number,” Vitor Gaspar, head of the IMF’s Fiscal Affairs Department wrote in a commentary. “When we talk about the risks looming on the horizon, one of the risks has to do with the high level of public and private debt.”
The global debt burden clouded the IMF’s otherwise upbeat outlook for the world economy this year, which is in its strongest upswing since 2011. The fund forecasts global economic expansion of 3.9% in 2018 and 2019, while saying in subsequent years that the global economy could be impacted by tighter monetary policy and the fading effects of U.S. fiscal stimulus.
Surging private-sector debt, particularly in China, is driving the international buildup, said the IMF. China has accounted for almost three-quarters of the increase in private debt since the global financial crisis of 2008, according to the fund. The IMF figures account for the debt hangover from which the world is still recovering a decade after the financial crisis pushed the global banking system to the brink of destruction and tipped the world economy into recession.
Governments increased spending to boost growth after 2008, while central banks resorted to unconventional methods to ease financing conditions, such as buying bonds. High levels of sovereign debt could make it difficult for governments to refinance when their debt reaches maturity, especially if financing conditions tighten, the IMF warned in its report. Large debts also impede the ability of nations to increase spending if their economies fall into recession, and may cause a drag on growth.
The fund urged the U.S., whose budget deficit is expected to surpass $1 trillion by 2020, to “recalibrate” its fiscal policy so government debt-to-GDP levels decline over the medium term.
