Total global debt dips, but emerging market debt hits record high

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NEW YORK (Businesshala) – Global debt dipped in the third quarter, though it remained near a record high set in June, while debt in emerging markets hit a new record high of $92.5 trillion, a report showed on Wednesday.

FILE PHOTO: Customers are seen at a counter inside Bank Indonesia premises in Jakarta, Indonesia, December 16, 2015. Businesshala/Darren Whiteside/File photo

After rising to a record high in the second quarter, total debt owed to governments, households and companies fell to $296 trillion at the end of September. That’s about $36 trillion above pre-pandemic levels.

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The ratio of debt to annual global economic output fell more than 10 percent from July to September, reaching 350% at the end of the third quarter, as economies around the world recover from a pandemic-induced recession, data from the Institute for International Finance showed. .

Total emerging market debt reached $92.6 trillion, with China taking over Dragon’s share.

Debt to GDP in China has risen 25 percentage points to 330% since the end of 2019, accounting for more than 80% of emerging market debt creation during the period. Emerging market government debt stood at a record low of about 63% of GDP.

In emerging markets excluding China, total debt hit a record high of $36.4 trillion, largely driven by an increase in government debt, but external debt is on track to fall below 43% of GDP in 2021 , which is down from a high of around 46% in 2020. ,

The IIF report said, “With political and social pressures limiting governments’ deficit reduction efforts, the need for higher government funding represents a source of vulnerability in many countries in the face of widespread revenue weakness. “

According to the data, more than 95% of the growth in emerging market debt since the end of 2019 has been in local currency bonds, although the appeal of that debt has fallen among foreign investors, which now account for about 19% of local currency debt. compared to 23% at the end of 2019.

The sharpest decline in foreign ownership was seen in Indonesia and Russia, while demand rose in China, Peru and Korea.

In foreign currency debt, Turkey, Saudi Arabia and Colombia have seen the fastest growth in relation to GDP since the start of the pandemic.

In developed markets, debt declined by $1.4 trillion last quarter, the IIF said, with the sharpest declines in Japan and the euro area.

In developed markets, a large portion of spending went to social nets and health, while still only a very small portion is earmarked for environmental protection and climate change.

“With increasing decarbonization efforts, many governments are expected to channel significantly more resources to climate priorities, with major implications for government debt[and]interest rates,” IIF said.

Reporting by Rodrigo Campos; Editing by Peter Graff

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