According to the recent figures reported by the International Monetary Fund (IMF) in December 2021, 2020 witnessed the largest one-year debt surge after World War II, which jumped significantly to $226 trillion (256 percent of GDP). 

Fitch’s report expects elevated global inflation to contribute to put the government debt to GDP in nominal terms through raising GDP and in real terms by lowering real interest rates.

“The familiar ‘debt dynamics’ equation allows for isolation of the inflation effect on debt/GDP ratios and a more detailed analysis,” the report noted.

In December 2021, Fitch estimated global inflation at 5.5 percent year-on-year, the highest since 2009, with annual average inflation in 2021 at 3.3 percent, which is also the highest since 2012.

The report predicts the global inflation wave to ease in 2022, as demand on goods begins to recede and supply bottlenecks relieve.

It also projects the global annual average inflation to slightly decrease to 3.2 percent in 2022 and the global sovereign debt to GDP ratio to fall by two percent, matching 2008 for the highest inflationary effect in more than 20 years.

“Holding all other variables constant, a one percent increase in the median for annual average inflation rates to 4.2 percent would reduce global government debt by an additional 0.5 percent of GDP,” the report explained.

Fitch pointed out that inflation is running higher in emerging markets than in developed markets.

“But, most emerging-market sovereigns have debt denominated in foreign currencies, exposing government debt ratios to risks of currency depreciation that might accompany higher inflation,” the report stated.

It added that the reduction of sovereign debt ratios, going forward, will draw on improvements in primary balances as real GDP growth slows from post-pandemic recoveries and real interest rates rise as a result of the global monetary policy normalisation even as inflation lingers.

As per recent data published by the Central Bank of Egypt (CBE), Egypt’s external debt declined slightly in the first quarter (1Q) of the current FY 2021/2022 to post $137.4 billion, down from $137.8 billion reached at the end of FY 2020/2021.

By the end of 2021, Egypt gross debt accelerated to 91.4 percent of its GDP, up from the 89.8 percent in 2020, estimated by the IMF.

Egypt is aiming to cut the public debt to GDP ratio to 84 percent in FY 2022/2023 and 79 percent in FY 2023/2024 under its medium-term debt management strategy.