Global debt balloons to record highs

Lazy eyes listen


The global debt pile climbed by $8.3 trillion in the first quarter of the year to a near-record high of $305 trillion as central banks tightened monetary policy aggressively, according to the Institute of International Finance (IIF).

According to the Global Debt Monitor report released on Wednesday, the reading is the highest since the first quarter of last year and the second-highest quarterly reading in history.

The IIF warned that the combination of such high debt levels and rising interest rates has increased the cost of debt servicing, raising concerns about financial system leverage.

“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms,” according to the IIF.

Despite fears about a potential credit crisis following recent instability in the banking sectors of the United States and Switzerland, the finance industry association emphasised that government borrowing should stay high.

Aging populations and rising healthcare costs, according to the report, continue to put pressure on government balance sheets, while “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” potentially affecting the credit profile of both governments and corporate borrowers.

“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” said the IIF.

According to the report, overall debt in developing markets reached a new high of more than $100 trillion, or roughly 250% of GDP, up from $75 trillion in 2019. According to the IIF, the largest upward contributors were China, Mexico, Brazil, India, and Turkey.

In terms of developed markets, Japan, the United States, France, and the United Kingdom saw the most significant rises during the quarter, according to the report.