Global debt grew a hefty $2 trillion in the first three months of 2019 buoyed falling interest rates in the face of easier financial conditions, figures from the Washington-based Institute of International Financial (IIF) show.
Borrowers took on debt in first quarter at the fastest pace in over a year. At $246 trillion which equates to almost 320 percent of world Gross Domestic Product (GDP), global debt is just $2 trillion away from the all-time high of $248 trillion reached in the previous corresponding quarter last year.
“It is unsurprising that global debt grew on the premise that major central banks are tilting towards more accommodative policy stance” said Ifeanyi Obioha, Associate at Ernest & Young (EY). “While lower interest rates encourage consumers and businesses to borrow to boost growth, they can also dig an economy into a deeper hole.”
The global finance body maintained that going forward broad-based central bank easing could prompt more debt build-up across the board, thwarting deleveraging efforts and rekindling concern about long term headwinds to global growth.
Debt owed by emerging markets (EMs), which accounted for 28 percent of global indebtedness and 216 percent of world GDP, grew marginally 15 basis points to a record high of $69.1 trillion in first quarter.
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The persistent economy-wide increase in EM borrowing continues to feed into higher contingent liabilities for many sovereigns.
With households and government debt reaching record high of $12.5 trillion and $15.6 trillion respectively, rise in overall debt to GDP ratio since last year has been most significant in China, South Africa and Brazil.
According to the global finance body, high reliance on short-term debt leaves many emerging markets exposed to sudden shifts in global risk appetite, saying dovish monetary stance of major central banks offers a renewed opportunity for firms to lengthen and repair their balance sheet.
Of the $69.1 trillion owed by emerging economies, $30.1 trillion was borrowed by non-financial corporates, $12.5 trillion by households, $15.6 trillion by government and $10.9 trillion by financial sector.
Nigeria and Kenya both saw households’ debt to GDP ratio dip to 3.9 percent and 7.5 percent respectively in first quarter, from 4.5 percent and 8.1 percent a year earlier, compared to South Africa, where household debt rose to 34.1 percent, from 33.33 percent.
In Africa, Mozambique, Eritrea and Sudan are debt-ridden as their public debt to GDP ratio is over 100 percent.
Following a massive $3.8 decline in the last three quarters of 2018, total debt in advanced markets grew $1.6 trillion to hit $177 trillion in first quarter.
Most of the first quarter increase was on the back of over $1 trillion in government debt, though other sectors recorded increase in debt levels.
Easing in financial conditions is expected support further build-up, worsening concerns about debt service burdens and sovereign debt sustainability, according to the global finance body.
Israel Odubola
