Global debt jumps to new high of $226 trillion: IMF

The remaining emerging economies and low-income developing countries contributed only around 7 per cent.

“Because of COVID 19, and of policies put in place to respond to it, debt levels increased fast and reached high levels. High and rising levels of public and private debt are associated with risks to financial stability and public finances,” IMF director of fiscal affairs department Vitor Gaspar told reporters while releasing the 2021 Fiscal Monitor Report.

Constraints on financing are particularly severe for poorer countries, Gasper said. Noting that in 2020, fiscal policy proved its worth, he said the increase in public debt, in 2020, was fully justified by the need to respond to COVID-19 and its economic, social and financial consequences. But the increase is expected to be one-off, he said.

Gasper said debt is expected to decline this year and next, by about 1 percentage point of gross domestic product (GDP) per year.

After that it is projected to stabilise at about 97 per cent of GDP. These debt dynamics are driven by a strong contribution from nominal GDP growth, accompanied by a much more gradual reduction in the primary deficit, he said.

In its report, the IMF said risks to the fiscal outlook are elevated. A scaling up of vaccine production and delivery, especially to emerging markets and low-income developing countries, would limit further damage to the global economy.

“On the downside, new variants of the virus, low vaccine coverage in many countries, and delays in some people's acceptance of vaccination could inflict new damage and increase pressures on public budgets. The realisation of contingent liabilitie—including from loan and guarantee programmes—may also lead to unexpected increases in government debt,” it said.

“Further pressures could come from social discontent, with the crisis estimated to have thrown between 65 and 75 million people into poverty in 2021 relative to pre-pandemic trends. Large government financing needs are a source of vulnerability, especially in emerging markets and low-income developing countries, where financing conditions are sensitive to global interest rates and central banks have begun to raise short-term reference rates,” IMF said.

Fiscal policy will need to respond nimbly to these challenges and facilitate the transformation of the global economy to make it more productive, inclusive, green, and resilient to future health or other crises, it said.

At the same time, it will be crucial to ensure transparency and accountability, plot a medium-term path to rebuilding fiscal buffers, and make progress toward Sustainable Development Goals, it said.

Fibre2Fashion News Desk (DS)