Emerging Markets Drive Global Debt To Record $303trn-IIF

Emerging-market borrowing led by China inflated the global debt mountain to a record $303 trillion in 2021, although the global debt-to-GDP ratio improved as developed economies rebounded, the Institute of International Finance said last week.

The $10 trillion rises in the global debt pile were down from the $33 trillion increase in 2020 when COVID-19-related expenditure soared.

But more than 80 per cent of last year’s new debt burden came from emerging markets, where total debt is approaching ID$100 trillion, the IIF said in its annual global debt monitor report.

That means emerging markets have started in 2022 facing record-high refinancing needs just as the Federal Reserve prepares to raise interest rates after years of record-low borrowing costs.

“While the pace of accumulation slowed in 2021, EM government debt levels remain elevated,” the IIF authors wrote.

“This slowdown is in line with the moderation in government budget deficits seen over the past year. Yet, since the onset of the pandemic, some EM governments seem more reliant on off-budget borrowing,” they said, pointing to rising non-financial corporate debt levels in China, Russia and Saudi Arabia.

The IIF also noted that the vast majority of additional emerging market debt last year was in local currencies, and its share was the highest since 2003.

This came at a time when the pandemic slashed foreign investors’ appetite for local currency assets – at 18 per cent, foreign participation in local bond markets is at its lowest since 2009.

Those countries that are heavily reliant on external borrowing face greater risks from wobbly market sentiment and the rise in US interest rates.