The Global non-financial sector’s debt to GDP ratio jumped from 138 percent to 152 percent over the decade leading up to the end of 2019, the International Monetary Fund (IMF) unveiled on Monday
In chapter two of its global financial stability report, the IMF revealed that the non-financial corporate sector’s debt to GDP ratio increased in both advanced and emerging market economies, reaching a historical high of 91 percent at the end of 2019.
In contrast, household debt to GDP ratio rose sharply among emerging market economies but fell in advanced economies, reaching 60 percent worldwide at the end of 2019, according to the report.
On the ongoing crisis, the report said that the COVID-19 shock has led to a further increase in the non-financial sector’s leverage across economies, squeezing cash flows for the corporate sector and, through its impact on employment, increased the financing needs of households.
It added that the unprecedented and warranted monetary and fiscal policy support launched during the containment phase of the pandemic has eased market dysfunction, loosening financial conditions after a sharp tightening in the first quarter of 2020, and kept the flow of credit to households and firms.
Policy support has also backed their ability to repay, thus allowing them to avoid having liquidity pressures shift into solvency issues, according to the report.
However, such procedures have come at the expense of increased debt levels for most economies, as global non-financial corporate and household debt went up by 11.5 percent and 5 percent of GDP between the end of 2019 and the third quarter of 2020, respectively.
Moreover, there has also been a visible rise in debt levels during the COVID-19 crisis in emerging markets, alongside the sharp declines in output in them that have contributed to the recent increase in debt to GDP ratios, according to the report.
The report said that leverage in the non-financial private sector globally reached historical highs for many economies in the run-up to the COVID-19 crisis, reflecting easy financial conditions in the aftermath of the global financial crisis.
Rising leverage could increase risks to financial stability and pose a challenge to policymakers in the post–COVID-19 phase, according to the report.
The IMF and the World Bank will launch their spring meetings on 5 April, which are expected to conclude on 11 April.