Global debt pile rises to record $296tn amid continued pandemic uncertainties

About $4.8 trillion were added to the global debt pile in the second quarter of this year, pushing the total to a record high of $296tn as sovereigns, corporates and households continued to borrow amid continued pandemic-driven headwinds.

The overall debt, which declined slightly during the first quarter of this year, rose by more than $36tn in the quarter ending June 30 from its pre-pandemic level, the Institute of International Finance said in its Global Debt Monitor.

However, the global debt-to-gross domestic product ratio registered the first quarter-on-quarter decline since the onset of the pandemic. At around 353 per cent, in the second quarter of 2021, the global debt-to-GDP ratio was 9 percentage points below the all-time high of 362 per cent recorded in the first three months of this year.

Overall, 51 of the 61 countries monitored by the IIF recorded a decline in debt-to-GDP ratios in the second quarter, mostly on the back of a pick-up in economic activity.

“However, the recovery has not been strong enough to bring debt ratios below pre-pandemic levels in most cases,” it said.

Governments and central banks globally have poured about $25tn in monetary and fiscal stimulus support since the onset of the pandemic to boost economies, strengthen banks and stabilise financial markets. But governments are still looking at widening fiscal deficits amid an uneven global economic recovery and continue to borrow.

The global economy, which last year tipped into its deepest recession since the Great Depression of the 1930s, is expected to grow 6 per cent in 2021. However, the rapid spread of the more virulent Delta strain of Covid-19 and inequitable access to vaccines is threatening the pace of economic rebound.

The rise in global debt was “sharpest in emerging markets”, with total debt topping $92tn in the second quarter, up from over $87tn in the same period in 2020. The steady rise in emerging markets debt has pushed it $15tn higher than the pre-pandemic levels.

China’s debt levels also rose with total sectoral debt rising by an estimated $2.3tn in the second quarter to reach an all-time high of over $55tn. “The pace of China’s debt build-up has been much steeper than in other countries,” the IIF said, adding that the non-financial sector accounted for over 40 per cent of the rise.

Although the rate of growth in total debt remained slower than in the second half of 2020, government bond issuance rebounded to hit a new record of "some $780 billion" in the second quarter, according to the report.

Emerging markets debt, excluding China, also reached a fresh high of nearly $36tn, about $3tn higher since the onset of the pandemic, mainly driven by government borrowing including Brazil, Korea and Russia.

Mature market debt levels also rose, albeit slowly, after a slight decline in the first three months of the year. Total debt in mature markets increased by over $1.3tn to near $205tn, or about 418 per cent of their combined GDP.

“The debt build-up was most substantial in the Euro area, largely driven by Germany and France,” the IIF said.

“At around $490bn, debt accumulation in the US in Q2 was the slowest since the onset of the pandemic. However, household debt increased at a record pace [while] corporate debt declined.”

Global household indebtedness jumped by $1.5tn in the first six months of 2021 and now stands at some $55tn. During the same period, government and corporate debt grew at a slightly slower pace, at around $1.3tn and $1.2tn, respectively.

“Nearly one-third of the countries in our sample saw an increase in household debt-to-GDP ratios in H1 2021, particularly in Switzerland, Russia and Korea,” the IIF said.