According to the latest Global Debt Database of the International Monetary Fund (IMF), global debt reached $235 tn in 2022, up by $200 bn from 2021. Last year’s global debt represented 238 percent of the global gross domestic product (GDP).
To put things into perspective, the global debt in 2019 was 229 percent of the GDP. It increased to 258 percent of the GDP in 2020. In the following year, it showed a 10-percentage point decline, reaching 248 percent. It further slid by another 10 percentage points, hitting the said 238 percent in the latest figures.
The data shows that while the global debt burden has seen a decline for the second consecutive year, it still surpasses the already elevated pre-pandemic level. With this development, the IMF noted that global debt “may return to its long-term rising trend.”
Public and private debt
The persistently high levels of public debt are a major factor contributing to the world’s debt burden. The alarming numbers can be attributed to governments’ increased spending to stimulate growth amid waning pandemic-related fiscal support.
Comparing it to 2020, when the COVID-19 pandemic was at a peak, public debt declined by only eight percentage points of GDP in the past two years. It offset merely half of the increase caused by said global health emergency.
Meanwhile, private debt saw a more rapid decline at 12 percentage points of GDP. This reduction was insufficient to erase the pandemic-induced debt surge. Private debt includes household and non-financial corporate debt.
The IMF recommends policymakers around the world “to be unwavering over the next few years in their commitment to preserving debt sustainability.”
Read: Global debt reaching ‘crisis’ levels
Decades-old issue
Decades before the pandemic, global debt-to-GDP ratios had already been steadily increasing. In particular, public debt tripled since the mid-1970s, reaching 92 percent of GDP by the end of 2022. Private debt followed the same trajectory, tripling from 1960 to 2022 to hit 146 percent of GDP.
In the last two decades, low-income developing countries have also experienced substantial debt growth over the last two decades. According to the IMF, more than half of these countries are at high risk of debt distress.
The IMF noted that low-income developing countries should focus on enhancing their capacity to collect additional tax revenues. In cases of unsustainable debt, a comprehensive approach is needed. It includes fiscal discipline and debt restructuring under the Group of Twenty Common Framework. The framework is a multilateral mechanism for forgiving and restructuring sovereign debt.
To tackle debt vulnerabilities in the private sector, the IMF meanwhile recommended “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,” the organization continued.
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