Global Debt reaches record high of $182 trillion – IMF

Global debt continues to rise in 2017, reaching a new record high at $182 trillion, the International Monetary Fund, IMF, in a Transcript of the Press Conference of the October 2018 Fiscal Monitor sent to Elombah News.

IMF stated “In the 10 years between the Asian financial crisis and the global financial crisis, global debt has more than doubled. The pace of leveraging slowed down after that. Nevertheless, global debt still increased by more than 50 percent. China accounted for nearly 40 percent of the U.S. dollar value of the increase in the last 10 years. The U.S. and China together represented almost two‑thirds of the increase.

“Assets are important. It is not only what you owe; it is also what you own.

“In the Fiscal Monitor, we show that for a sample of 31 countries, covering 61 percent of global GDP, total assets are worth $101 trillion, or 219 percent of GDP. In the advanced economies, prior to the global financial crisis, private debt was rising fast while public debt was broadly stable. After the global financial crisis, we see a role reversal, with fast increases in public debt. The sharp increase in public debt was only partly due to the implementation of fiscal stimulus measures.

“Another contributing factor was the massive expansion of public sector balance sheets because of government rescue actions. For example, in the United Kingdom, public large‑scale financial sector interventions resulted in a reclassification of some large banks into the public sector. As a result, public sector liabilities increased by more than 200 percent of GDP between 2007 and 2009, from 126 percent of GDP to 335 percent of GDP. Assets also increased. Public debt ratios increased because of the previously mentioned interventions but also because of reductions in output. On balance, there was a significant deterioration in public sector net worth.

“Now let’s move on to emerging markets and talk about emerging markets’ debts and assets. In emerging market economies, private debt is growing fast while public debt is broadly stable. You will recall that that is exactly the same pattern recorded in advanced economies before the global financial crisis.

“China is the main driver of private sector debt growth in emerging market economies, but bear in mind that in China, the border between public and private is blurry. In any case, according to our estimates, since 2007, China contributed almost 60 percent to the world’s accumulation of nonfinancial private debt. The Chinese authorities are well aware of these trends and have taken action to rebalance the economy and slow down the debt buildup. The slowdown is already well visible in the data for 2016 and 2017. Moreover, as the right‑hand side figure shows, at more than 100 percent of GDP, net worth in China is the largest among emerging market economies. This is a significant buffer even when compared to total debts of public corporations.

“Most other emerging market economies covered also post positive general government net worth. However, we should not draw a too positive picture because estimates of nonfinancial assets, such as infrastructure and natural resources, are less reliable. And for most countries, financial net worth is negative. In the case of China, financial net worth, while positive, is much smaller than total net worth. Moreover, it has been declining in recent years.

“Regarding low‑income developing countries; A key challenge for this group of countries is to improve people’s livelihoods by meeting the Sustainable Development Goals by 2030. Most low‑income developing countries face substantial spending needs to achieve Sustainable Development Goals. These additional spending needs for some specific sectors represent 14 percentage points of GDP in the aggregate. That corresponds to $520 billion, or about 0.5 percent of global GDP. But the challenges go well beyond financing. A key point here is that countries must own the responsibility for achieving the Sustainable Development Goals. They must articulate their own development strategy based on good governance, efficiency of spending, and strong tax and state capacity. But mobilizing financing on this scale will also require building trust and a strong partnership among all stakeholders. The international community, the private sector, donors, civil society, and philanthropists.

“The current expansion will not continue forever. In fact, as you heard yesterday in the presentation of the World Economic Outlook by Maury Obstfeld, risks are looming closer and some of the risks have already materialized. It is time to build fiscal space against the next downturn. Systematic compilation of use of public sector balance sheets can lead to lower debt servicing costs and higher return on assets, better management of risks. And, overall, it may help to put public wealth to work at the service of societies’ economic and social goals. Building tax capacity is crucial for enabling state capacity and for achieving the Sustainable Development Goals. Now my colleagues and I will very much welcome your questions.”