US, China drag global debt to $235trn, IMF raises concern for developing nations

The International Monetary Fund (IMF) said global debt increased to $235 trillion in 2022, which is 238 percent of the global gross domestic product reported last year.

IMF said the United States and China accounted for a combined $117.5 trillion in debt, representing 50 percent of the global debt.

The financial organisation disclosed this in a report titled; ‘Global Debt Is Returning to its Rising Trend,” which was obtained on Thursday, but dated September 13, 2023.

“The global debt burden retreated for the second year in a row, even though it remains above its already-high pre-pandemic level, according to the latest update of our Global Debt Database.

“The total debt stood at 238 percent of global gross domestic product last year, 9 percentage points higher than in 2019. In US dollar terms, debt amounted to $235 trillion, or $200 billion above its level in 2021,” IMF said.

China’s total debt was placed at $47.5 trillion and that of the United States was close to $70 trillion based on the report.

“Before the pandemic, global debt-to-GDP ratios had risen for decades. Global public debt tripled since the mid-1970s to reach 92 percent of GDP (or just above $91 trillion) by end-2022.

“Private debt also tripled to 146 percent of GDP (or close to $144 trillion), but over a longer time span between 1960 and 2022,” the report reads.

IMF worries over debt levels for developing countries

IMF expressed concern for debt levels in low-income developing countries, stating that: “Debt in low-income developing countries also rose significantly in the last two decades, albeit from lower initial levels.

“Even as 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.

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“More than half of low-income developing countries are in or at high risk of debt distress, and about one fifth of emerging markets have sovereign bonds trading at distressed levels.”

Tackling debt vulnerabilities

In the report, the IMF advised that governments should monitor household and non-financial corporate debt burdens, as well as related financial stability risks.

It was also suggested that improvement of capacity to collect additional tax revenues and debt restructuring are key for low-income developing countries.

“Governments should take urgent steps to help reduce debt vulnerabilities and reverse long-term debt trends. For private sector debt, those policies could include vigilant monitoring of household and non-financial corporate debt burdens and related financial stability risks.

“For public debt vulnerabilities, building a credible fiscal framework could guide the process to balance spending needs with debt sustainability.

“For low-income developing countries, improving the capacity to collect additional tax revenues is key, as we discussed in our April Fiscal Monitor.

“For those with unsustainable debt, a comprehensive approach that encompasses fiscal discipline as well as debt restructuring under the Group of Twenty Common Framework—the multilateral mechanism for forgiving and restructuring sovereign debt—when applicable is also needed, as noted in the April World Economic Outlook,” IMF said.

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