Rise In Global Debt Post Covid-19 Is A Major Concern: CareEdge Ratings
The “higher for longer" interest rates has led to increased borrowing costs for government debt, subsequently elevating debt service costs, a report by CareEdge Ratings highlights.
USD 92 trillion, accounting for about 92 per cent of global GDP in 2022 and USD 19 trillion or about 20 per cent of this global public debt, has been accumulated since the year 2020.
Post-Covid, supply chain disruptions and the Russia-Ukraine conflict triggered inflationary pressures, prompting central banks to increase interest rates. Since 2021, policymakers have raised rates by an average of 400 basis points (bps) in advanced economies and approximately 650 basis points in emerging market and developing economies (EMDEs).
According to data from the International Monetary Fund (IMF), this Global Public Debt is expected to surge to USD 132 trillion by the year 2028.
Since 2020, about 19 economies have either defaulted on their debt obligations or restructured debt with 7 in 2022 alone. These numbers seem very high when compared to 11 sovereign defaults or debt restructuring events across countries between 2008-19, the report mentions.
Mehul Pandya, Managing Director and CEO, CareEdge Group said, “There has been a sharp rise in debt levels across Advanced and EMDEs post the pandemic. Many of the advanced economies, even with high debt levels, enjoyed low debt servicing cost due to low interest rates in the past. But now, with interest rates expected to remain higher for a longer period, they will feel the pain of rising debt servicing cost.”
According to the Bank of Canada-Bank of England database on sovereign defaults, the total sovereign debt in default amounted to USD 554 billion in 2022, about a 34 per cent jump as compared to 2021.
Rajani Sinha, Chief Economist, CareEdge Ratings said, “The recent surge in global debt has been remarkable both in its rapid ascent and sheer volume. With the sharp rise in debt levels, the quantum of debt distress has also been rising steadily. Since 2020, about 19 economies have either defaulted on their debt obligations or restructured debt with 7 in 2022 alone.
These numbers seem very high when compared to 11 sovereign defaults or debt restructuring events across countries between 2008-19. Increased Chinese loans have also heightened the debt vulnerabilities of the recipient countries as these loans come at relatively higher interest rates and there is lack of transparency in terms and conditions of these loans.”
CareEdge Rating in the report said that while Chinese loans have often been mutually beneficial for both the creditor and the debtor, it also heightened the debt vulnerabilities of recipient countries due to the size of loans, relatively higher interest rates and lack of transparency in terms and conditions of the loans.
The data from the World Bank indicates that loans from China escalated from USD 333 billion in 2012 to USD 952 billion in 2022, marking a compounded annual growth rate (CAGR) of 11 per cent.
