Global government debt to hit $71.6 trillion in 2022

The Janus Henderson Sovereign Debt Index has predicted that total government debt around the world will increase 9.5% to $71.6 trillion in 2022, with the US, Japan and China accounting for around three quarters of the expected $6.2 trillion rise in borrowing.

The report said government debt has tripled in two decades and that since the pandemic began, global sovereign debt has risen by a quarter.

The global government interest bill will rise in 2022, up by 14.5% on a constant-currency basis.

Global government debts rose to $65.4 trillion in 2021, an increase of 7.8% on a constant-currency basis, as every country borrowed more.

But debt servicing costs fell to a record low of $1.01 trillion, an effective interest rate of just 1.6%.

Borrowing among European nations (except UK) rose to $14 trillion in 2021, up 8.7% year-on- year on a constant-currency basis, but the cost to taxpayers of servicing that debt fell to “just” $186 billion, its lowest in at least 25 years, thanks to very low interest rates.

“European government debt has grown much more slowly than the US over the longer term, reflecting treaties aimed at protecting the euro and also slower economic growth,” said the report.

“For the year ahead, Europe’s debts are set to rise more slowly than the rest of the world as it begins to exit from the pandemic.

“Debt servicing costs (in Europe) are also under control and unlikely to rise significantly …

“The French government borrowed an additional $267bn in 2021, an increase of 8.9% on a constant-currency basis, a little more than the rest of the world.

“It took the total owed by the French state to $3.3 trillion, equivalent to $52,692 per citizen.

“Unlike many other parts of the world, France spent a touch more servicing its debts in 2021 than in 2020.

“It’s $34bn interest bill was still the second lowest in at least two decades, however.

“For the year ahead, French debts will rise again, but more slowly, while the cost of servicing this debt stays broadly flat …

“In October 2020, the effective yield on French bonds fell to -0.4%, close to the mid-2019 record low.

“By the end of January 2022, this had risen to 0.16%, having jumped especially quickly since the summer of 2021. French bonds delivered a -4.7% total return between the end of January 2021 and the end of January 2022.”

The report said most countries borrowed less in 2021 than in 2020, but this was not the case in Germany.

Germany’s debt burden rose by 14.7%, almost twice the global average, taking it to a record $3 trillion.

“Despite the sharp increase, Germany still owes a tenth less than France, despite having a population more than a quarter larger, and an economy two fifths bigger,” said the report.

“Moreover, Germany benefited from much lower interest rates too, so its debt servicing bill was just $21bn, well below that of its neighbour.

“Germany has now embarked on a programme of significant new defence spending and has abandoned its debt brake.

“Its interest bill will increase as the negative yields that have enabled the German government to issue bonds and receive money for doing so, are increasingly a thing of the past.

“In October 2020, the effective yield on German bonds fell to a record low of -0.7%.

“By the end of January 2022, this had risen to -0.2%, like yields elsewhere having jumped especially quickly since the summer of 2021.

“German bonds delivered a -3.3% total return between the end of January 2021 and the end of January 2022.”

The increase in Spain’s public debt slowed sharply in 2021 to 7.5% on a constant-currency basis, just a touch less than the global average, taking it to a record $1.64 trillion — four times larger than at the beginning of the century.

Spain’s interest bill last year of $20 billion was its lowest since 2007, but is similar in size to Germany’s despite Spain having a much smaller economy and population.

UK sovereign debt has risen very sharply over the course of the pandemic, up by 29% compared to the 25% global average.

The UK now owes a record $3.3 trillion, three times more than before the global financial crisis.

Nevertheless, the UK paid less in interest costs in 2021 than in 2005 thanks to the decline in interest rates.

At $36.2 billion, the UK’s interest bill was the lowest on record. This is set to change, however.

“The UK’s interest burden will rise sharply in 2022 and 2023 for two reasons,” said the report.

“First, the Bank of England will have to pay more in interest on the money it has created as part of the QE programme than it receives on the bonds it has bought.

“Each 1 percentage point increase in bank rate will add £25 billion ($35bn) to the Treasury’s bill, equivalent to 1.1% of GDP.

“The UK Treasury will need to finance the QE unwinding with cash transfers within the next three years – an unwelcome burden to be shouldered by the taxpayers.

“Secondly, inflation-linked bonds make up a relatively large share in the UK’s debt mix – worth around a quarter of the total outstanding, and more than any other developed country. Higher inflation is raising the cost of servicing this borrowing.

“The rate of increase in the UK’s outstanding debts will tail off, but this will not prevent the spiral of higher interest expenses, creating a significant burden on the UK’s public finances.”

Global government bond markets delivered a -1.9% total return in 2021, only the fourth time in 35 years to see a decline.

By the end of 2021, US government borrowing had soared to $22.3 trillion, up $1.3 trillion year-on-year.

US government debt is now a third larger than its pre-pandemic level, compared to an increase of just over one fifth for the rest of the world.

 

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.