Asharq Al-awsat English Middle-east and International News and Opinion from Asharq Al-awsat Newspaper

Institute of International Finance: Global Debt Hits Record High

Institute of International Finance: Global Debt Hits Record High

Sunday, 7 January, 2018 - 09:00
Institute of International Finance.

Global debt hit an all-time high of $233 trillion in the third quarter of 2017, according to Washington-based Institute of International Finance (IIF), which is a $16 trillion increase on debt levels at the end of 2016 and more than three times the size of the global economy.

The Independent newspaper reported IIF as it divided the debts as follows: non-financial companies' debt reached $68 trillion, governments around the world have $63 trillion in debt, financial institutions have $58 trillion, and households hold total debt of $44 trillion.

However, IIF warned that if interest rates rise around the world that could make many debt burdens harder to service.

Global debts exceeded the gross domestic growth (GDP) of top 100 international economies, with the US on top, followed by the UK with $7.9 trillion, the France with $5.4 trillion in debts, and Germany with $5.1 trillion.

China, Russia, South Korea and Brazil have a heavy dollar-debt repayment schedule in 2018 with the Asian superpower’s debt becoming an increasing concern for others.

However, the Express magazine focused its global debts' report on China, with a report entitled, "Made in China", which holds the biggest share of new debt in emerging markets.

The pace of debt accumulation slowed down recently with deficit rising two percentage points last year to 294 percent of GDP, compared to an average annual increase of 17 percentage points in the 2012-2016 period, said the magazine.

Despite the growing debt mountain, the IIF said on Thursday that robust economic growth meant debt-to-GDP ratios were actually declining.

The newspaper reported the International Monetary Fund's recent warnings on credit growth outpacing GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25 percent, which is very high by international standards and consistent with a high probability of financial distress.

China's corporate debt has reached 165 percent of GDP and household debt has risen by 15 percentage points of GDP over the past five years and is increasingly linked to asset-price speculation.

China’s shadow banking assets grew more than 20 percent in 2016 to $9.8 trillion, equivalent to 86.5 percent of China’s gross domestic product.

"In a rising-rate environment, stronger hard currencies would pose substantial risks for some emerging markets (EM): While many emerging markets have reduced reliance on FX-denominated debts in recent years, Saudi Arabia, the Czech Republic and Turkey have seen a further buildup. At over $600 billion, FX-denominated bond issuance in EMs has been at a record pace in 2017," stated IIF's report.

With credit downgrades still outpacing upgrades in aggregate, private sector debt in Hong Kong, France, China, Switzerland, Turkey and Canada had the most evident rise since 2015.

Global debt-to-GDP ratios declined for a fourth consecutive quarter in Q3 2017. At around 318 percent, global debt-to-GDP is now 3 percentage points lower than its all-time high of 321 percent in Q3 2016.

At the same time, though, the ratio of debt-to-GDP fell for the fourth consecutive quarter as economic growth accelerated with the ratio now around 318 percent, 3 percentage points below a high set in the third quarter of 2016, according to IIF.

"A combination of factors including synchronized above-potential global growth, rising inflation (China, Turkey), and efforts to prevent a destabilizing build-up of debt (China, Canada) have all contributed to the decline," IIF analysts wrote in a note published by Bloomberg.

World’s per capita debt is more than $30,000 given United Nations calculations of the global population which reached 7.6 billion.

Editor Picks