Global Debt Significantly Above Pre-Pandemic Levels Despite Decline in 2021.

Global public and private debt fell in 2021 at the highest rate in the last 70 years, after reaching record levels due to the impact of the COVID-19 pandemic, but overall remained significantly above pre-pandemic levels, the International Monetary Fund (IMF) reported.

In a blog published alongside the Global Debt Monitor, the IMF stated that in 2021, total public and private debt fell by 10 percentage points to 247 percent of global GDP, down from a peak of 257 percent in 2020. In the year before the financial crisis, 2007, it was around 195 percent of GDP.

Expressed in dollars, global debt continued to rise, albeit at a significantly slower rate, reaching a record $235 trillion last year.

The debt-to-GDP ratio is expected to further decline in 2022 in most countries due to nominal GDP growth.

Citing data from 190 countries, the IMF reported that private debt, which includes non-financial obligations of corporations and households, contributed to an overall decline in 2021 of six percentage points, to 153 percent of GDP.

The decline in public debt by four percentage points, to 96 percent of GDP, is the largest in several decades, it noted.

Unusually large changes in debt ratios, the so-called ‘global debt slide’, were caused by the economic recovery from COVID-19 and rapid inflation growth, the IMF stated.

Debt dynamics varied significantly among groups of countries. Advanced economies experienced the largest debt reduction, with public and private debt falling by five percent of GDP last year, followed by similar results in emerging markets, excluding China.

However, in low-income countries, the share of total debt continued to rise in 2021, driven by higher private debt, with total debt reaching 88 percent of GDP.

Paulo Medas, who oversees the IMF’s fiscal monitor, stated that debt levels in low-income countries are now at their highest levels since the debt reductions of the 1990s and early 2000s.

There is growing concern about the ability of low- and middle-income countries to repay their debts, with estimates suggesting that 25 percent of emerging market countries and over 60 percent of low-income countries are in or near a debt crisis.

The IMF warns that debt management will become increasingly difficult if prospects continue to worsen and borrowing costs keep rising. It believes that governments should implement fiscal policies that help reduce inflationary pressures.