Global debt levels reached a new high of 331% the value of the world’s output in the first quarter of 2020 as countries borrowed to support their shrinking economies hit by the new coronavirus pandemic.
The world’s debt levels rose more than 10% points from 320% in the last quarter of 2019.
“While this marks the largest quarterly increase in global debt ratios on record, the actual rise in debt was only $1.2 trillion—well below the average quarterly rise of $2 trillion over 2015-2019,” said IIF.
However, available data on issuance suggests that the pace of debt buildup has accelerated since March, largely reflecting the massive global fiscal and monetary response to the pandemic, the Washington-based trade group of financial institutions said.
In the second quarter, gross debt issuance reached hit a record $12.5 trillion in compared to a quarterly average of $5.5 trillion in 2019, following the approval of $11 trillion in global fiscal stimulus and another $5 trillion in the pipeline.
60% was government debt, and 92% of the debts are still rated highly even though concerns are mounting over sustainability.
Also, the face value of defaulted non-financial corporate bonds jumped to a record $94 billion in Q2 2020 as their ratings plunged, reflecting the impact of the virus on the earning ability of businesses and their ability to meet obligations.
Notably, even though emerging markets saw their debt to GDP rise 10% points on a quarterly basis to 230% in the first three months of 2020, the dollar value of their debt fell by $700 billion to $72.5 trillion due to a depreciation in EM currencies against the USD.
IIF noted that emerging market foreign-denominated (FX) debt remained broadly stable at around $8.4 trillion in Q1 2020, suggesting that EMS have been able to roll over their FX liabilities despite market tensions amid COVID-19.
“However, the sharp depreciation in EM currencies against the USD, along with the steep contraction in output, prompted a surge in FX debt-toGDP ratios in Q1 2020 — most markedly in Ukraine, Chile, Mexico and Colombia,” it said.
Some $3.7 trillion of EM debt will mature this year, and almost 17% of the total is foreign-denominated while around $4 trillion of EM debt will mature in 2021 with almost 18% in foreign currency.
