WASHINGTON: The Interna­tional Monetary Fund (IMF) launched its database of public and private borrowing on Monday, noting that worldwide debt has now reached a new record high of $164 trillion, equal to 225pc of global GDP.

This surpasses the previous high of 213pc recorded in 2009. The database covers both public and private borrowing of 190 countries, which virtually covers the entire world and dates back to the 1950s.

In April the IMF warned that the world economy was more indebted now than before the global financial crisis (GFC) more than a decade ago and immediate action is needed to stop the next downturn.

Pakistan is included among high borrowers of both public and private loans. Although Monday’s report did not have specific data on Pakistan, reports from other sources put the country’s external debt at more than $88bn in the fourth quarter of 2017, from $85bn in the third quarter.

External debt in Pakistan has averaged at more than $53bn from 2002 to 2017, reaching an all-time high of $88.891bn in the fourth quarter of 2017, from a record low of $33.172bn in the third quarter of 2004.

The IMF report notes that the most indebted economies in the world are also the richer ones. “It is nonetheless striking that the top 2016 three borrowers in the world — the United States, China, and Japan) — account for more than half of the global debt, significantly greater than their share of global output,” the report adds.

Since the beginning of the millennium, China’s share in global debt has gone up from less than 3pc to over 15pc, underscoring the rapid credit surge in the aftermath of the global financial crisis (GFC).

Now, China alone accounts for almost three-quarters of the increase in global private debt.

Compared to the previous peak in 2009, global debt is now 12pc of GDP higher, reflecting an increase in both public and private non-financial debt.

The report notes that public debt increases have been mainly driven by advanced economies while the private debt surge is mainly explained by emerging market economies.

The report also notes that global debt ratios have been on an almost uninterrupted ascending trend since World War II, mostly because of borrowings by advanced economies, but emerging market economies have taken the lead in the aftermath of the GFC.

Yet, the gap between the debt of the G20 advanced and emerging market economies is still significant, exceeding 90pc of GDP on average, Low-income countries only account for less than 1pco of the global debt.

The IMF identifies the private sector as the driving force behind global indebtedness, which has almost tripled its debt since 1950. The debt of the non-financial private sector reached a peak of 170 percent of GDP in 2009 and has shown little deleveraging since.

The ascent of emerging market economies, however, is a relatively new development, which started to accelerate only in 2005. By 2009, emerging market economies had become the major force behind global trends. Private debt ratios doubled in a decade, reaching 120pc of GDP by 2016.

The report notes that up to the mid-1970s global public debt went steadily down only to reverse its course afterwards, mainly because growth, inflation, and financial repression in advanced economies pushed debt ratios down. Since then, advanced economies have experienced a continuous increase in public debt.

Among emerging market economies, public debt reached its peak of 63pc of GDP at the end of the 1980s, after which it declined partly reflecting consolidation efforts, restructuring, and favourable cyclical conditions. However, in the last few years, the decline in commodity prices and rapid spending growth pushed debt levels up again.

Public debt in low-income developing countries reached its peak at close to 90pc of GDP in the mid-1990s, sharply coming down after that. But high primary deficits and the fall in commodity prices since 2014 has resulted in a rapid uptick in their debt ratios as well.

Published in Dawn, May 15th, 2018


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