The International Monetary Fund (IMF) is reporting that global debt rose to a record US$226 trillion in 2020, due mainly to the coronavirus (COVID-19) pandemic, which caused the global economy to spin into a deep recession.

At the same time, the global public debt ratio hit a record high of 99 per cent of gross domestic product (GDP) and borrowing by governments accounted for more than half of last year’s overall increase, while household debt also posted its own record. 

The global debt rose by 28 per cent to equal 256 per cent of GDP in 2020, which represents the largest one-year debt surge since World War II. The disclosure in a blog post yesterday (December 15) by IMF officials, citing figures from the fund’s latest Global Debt Database.

The IMF officials wrote that debt increases are particularly striking in advanced economies, where public debt rose from around 70 per cent of GDP in 2007 to 124 per cent of GDP in 2020. In the meantime, private debt rose at a more moderate pace from 164 to 178 per cent of GDP in the same period.

Wealthier nations contributed most to ballooning debt

Wealthier nations made up 90 per cent of last year’s debt increase, according to the data, with both public debt and private debt increasing in those countries. Nations with fewer means such as emerging markets and low-income developing countries took on much smaller amounts of about $1 trillion in debt each.

The IMF officials highlighted the crucial challenge for policymakers to “strike the right mix of fiscal and monetary policies in an environment of high debt and rising inflation.”

This, they say, is particularly important, as the debt surge amplifies vulnerabilities.

According to IMF officials, “The risks will be magnified if global interest rates rise faster than expected and growth falters. A significant tightening of financial conditions would heighten the pressure on the most highly indebted governments, households, and firms.”

They suggested that some countries, especially those with high gross financing needs or exposure to exchange rate volatility, may need to adjust faster to preserve market confidence and prevent more disruptive fiscal distress.

The IMF officials made the point that the pandemic and the global financing divide demand strong, effective international cooperation and support to developing countries.