Mitsuhiro Furusawa, Deputy Director of the International Monetary Fund (IMF), said today, Wednesday, that the Fund is concerned about the high levels of debt in emerging and developed economies alike, due to the spending directed to revitalizing the economy in light of the Corona virus crisis.
Furusawa warned that for the first time ever, global public debt is expected to exceed the combined gross domestic product (GDP) level, after measures adopted by governments in the face of the health crisis.
He stressed during an online seminar organized by the Japanese Economic Center at the Columbia Business School, that he would urge countries to initiate financial reform once the pandemic is over.
"Once the economy is back on track, a medium-to-long-term financial framework must be put in place to manage the fiscal conditions on its basis," he said.
The data of the International Finance Institute indicated that government debt was estimated at 70 trillion dollars during the past year, while global GDP reached about 87.8 trillion dollars, according to data from the World Bank.
For its part, Fitch Ratings said today that total debt will reach $ 76 trillion, equivalent to 95% of global output, and more than twice the level of $ 34 trillion that it was before the financial crisis in 2007 and 2008.
Debt restructuring
The chief economist of the International Monetary Fund, Geeta Gopinath, said yesterday that many countries may need debt restructuring in the wake of the global pandemic Corona virus and its economic repercussions.
Gopinath told an online seminar hosted by Oxford University that there is no debt crisis at the moment, but that there will be "a more urgent need to alleviate the debt burden of the poorest countries in this world," given the pandemic.
Given that about 40% of low-income countries are already in debt distress or face a high risk of becoming so, as the number grows, there may be a "need to restructure debt in many countries," she added.
Increased adult debt
In this context, the British Barclays Bank said - on Wednesday - that the large developed economies face an increase in debt, as the Corona virus crisis causes a huge wave of financial stimulus, but it has time to arrange the situation.
In a new report on debt in developed markets, the Bank of England indicated that policymakers will not be able to ignore the deteriorating financial conditions for a long time.
The debt ratio, relative to the GDP of the G20 countries, is heading towards a higher level than during the Second World War next year.
Barclays expects the US debt rate to rise by about 30 percentage points in the next two years, while the euro zone debt rate is likely to increase to about 100% in 2020 compared to about 85% in 2019.
This is because the world's largest economy has the advantages of owning a reserve currency and a large and liquid bond market that is less susceptible to fluctuations, but the eurozone remains threatened as a monetary union without a monetary union, the bank said.
The bank pointed out that despite the low costs of lending in the euro area in general, the difference in economic trends between southern and northern Europe and its unique monetary system, means that it needs to find a separate way to reduce the total debt.
Barclays predicts that the redistribution of funds and credit and the application of fiscal restraint policy by setting a ceiling on bond yields will be the most appropriate solution to reducing debt at income levels in heavily indebted countries.
Important data
The Institute of International Finance says that global debt increased 10 trillion dollars to more than 255 trillion dollars last year, which is equivalent to about 32.5 thousand dollars for each of the world's population of more than 7.7 billion people.
This number is more than 3 times the world’s annual economic output (322%), and country-linked borrowing has been the most important driver of global debt over the past ten years.
The institute expects that the global debt size will rise to 342% in relation to global gross domestic product this year, driven by the economic downturn due to the effects of Corona, and the need for countries to borrow more to stimulate their economies.
The International Monetary Fund says that governments around the world have spent $ 10 trillion on financial measures taken in the face of the emerging pandemic of the outbreak of the virus Corna and its economic repercussions.
European Central Bank President Christine Lagarde said in May that eurozone governments may need to borrow an additional 1.5 trillion euros this year in order for their economies to have sufficient resources in light of the Corona virus pandemic.
According to Bank of America Merrill Lynch calculations, published last November, since the collapse of the American investment bank Lehman Brothers, governments have borrowed $ 30 trillion, companies earned $ 25 trillion, families borrowed $ 9 trillion, and banks earned two trillion dollars.
Fitch news agency said that the Corona virus will leave behind a global financial deficit of $ 9.7 trillion this year, which is equivalent to 12% of global GDP.
According to the International Finance Institute, global debt was distributed in 2019 according to the following:
- Government debt: $ 70 trillion.
- Corporate and non-financial institutions debt: $ 74.2 trillion.
- Financial sector debt: $ 63.1 trillion.
- Household debt: $ 48 trillion.