LONDON: Global debt levels have surged to a record US$217 trillion, driven by a US$3 trillion borrowing spree in the developing world, the Institute of International Finance said, warning of risks to emerging markets from short-term debt repayments.
The IIF, one of the most authoritative trackers of capital flows, said in a note late on Tuesday that global debt amounted to 327% of the world’s annual economic output (GDP) by the first quarter of 2017 and the rise was driven principally by emerging market borrowing.
While advanced economies continued to deleverage, cutting total public and private debt by over US$2 trillion in the past year, the report found total debt in developing countries had risen by US$3 trillion to US$56 trillion.
This amounted to 218% of their combined GDP, five percentage points above the first 2016 quarter.
China accounted for US$2 trillion of this rise, with its debt now at almost US$33 trillion, led by households but also company borrowing the IIF said.
“Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability,” the report said.
“In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada.” High debt levels may soon come into greater focus if central banks from the U.S. Federal Reserve to the European Central Bank start unwinding some of the stimulus they have pumped into world markets. U.S. interest rates are already on the rise, potentially boosting the dollar and global borrowing costs.
Recent ECB comments have also fuelled expectations it will announce a reduction in stimulus as soon as September . The Bank of International Settlements (BIS) this week urged policymakers to press on with rate rises notwithstanding financial market turbulence.
Higher global borrowing costs could weigh most heavily on those who took out dollar debt and will need to repay it or roll over in coming years.
The IIF report found that emerging markets had over US$1.9 trillion of emerging bonds and loans falling due by end-2018, and 15% of this was denominated in dollars. The biggest redemptions were in China, Russia, Korea and Turkey, it said.
Emerging hard currency-denominated debt rose by US$200bil in the past year - growing at its fastest pace since 2014 - and 70% of this has been in dollars, the report found.
“Rollover risk is high,” the IIF added. - Reuters
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