Europe borrows big; global debt hits record $281 trillion

Global debt soared by $24 trillion in 2020 to a new record high of $281 trillion, with European countries seeing some of the biggest increases in debt ratios — especially France, Spain and Greece.

The Institute of International Finance’s (IIF) global debt monitor estimated government spending programmes to help cope with the Covid pandemic accounted for about half of the rise, while companies, banks and households added $5.4 trillion, $3.9 trillion and $2.6 trillion of debt respectively.

The global debt-to-GDP ratio surged by 35 percentage points to over 355% of global GDP in 2020.

“The upswing was particularly sharp in Europe, with non-financial sector debt-to-GDP ratios in France, Spain, and Greece increasing some 50%pts,” said the IIF.

The report continued: “The upswing was well beyond the rise seen during the 2008 global financial crisis.

“Back in 2008 and 2009, the increase in global debt ratio was limited to 10%pts and 15%pts, respectively.

“With global debt issuance still running above pre-Covid levels (supported by still-low borrowing costs), the rise in global debt ratios is expected to be relatively modest this year; the projected rebound in GDP will help.

“However, debt trajectories may vary significantly — the pace of vaccination differs considerably across countries, and difficulty in vaccine rollout could delay recovery, prompting further debt accumulation …

“General government debt accounted for more than half of rise — up over $12 trillion in 2020 vs $4.3 trillion in 2019.

“Unsurprisingly, mature markets saw the biggest increase in government debt (+$10.7 trillion) as the fiscal response to the pandemic was constrained in most emerging markets …

“We expect global government debt to increase by another $10 trillion this year and surpass $92 trillion by end-2021.

“Although sizeable budget deficits have been essential to tackle the crisis, finding the right exit strategy could be even more challenging than after the 2008/09 financial crisis.

“Political and social pressure could limit governments’ efforts to reduce deficits and debt, jeopardizing their ability to cope with future crises …”