Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Global Debt Hit $315 Trillion as China, India Continue to Borrow Excessively

Wed 08 May 2024 | 09:35 PM
Currencies - File Photo
Currencies - File Photo
Taarek Refaat

Global debt has risen to a record $315 trillion as China and India continue to borrow excessively despite risks posed by geopolitical tensions and rising interest rates.

The Institute of International Finance (IIF) has warned that post-pandemic efforts to reduce debt have reached an end as governments cut taxes and increase spending amid a record number of elections this year.

The increase was “primarily driven by emerging markets,” where debt rose to an “unprecedented level of over $105 trillion,” it said, adding “That's $55 trillion more than a decade ago, with China, India and Mexico seeing the biggest increases so far this year.”

China is already dealing with a real estate crisis that threatens to impose a burden on economic growth for years to come, according to what the Telegraph.

The International Monetary Fund (IMF) has also warned that India's debt pile could exceed the size of its economy by the end of the decade as it spends billions of dollars every year on dealing with natural disasters.

Total global debt rose by $1.3 trillion to a new record high of $315 trillion in the first three months of the year, as global debt to GDP resumed its “upward trajectory” after falling for a long period following coronavirus lockdowns, IIF analysis showed.

The IIF added that increases in government debt led to a rise among advanced economies in the first three months of 2024 as stubborn US inflation threatens to keep interest rates high for longer.

“Given the 'flat' US inflation and the expected delay of interest rate cuts by the Fed, a stronger dollar... could once again highlight government debt pressures, especially the IIF said in its latest debt monitor. For developing countries.

It warned that US President Joe Biden is overseeing an ever-increasing debt pile, even as families in the world's largest economy were paying off money owed on personal loans and credit cards.

“While the health of household balance sheets should provide a cushion against higher interest rates for longer in the near term, government budget deficits remain above pre-pandemic levels and are expected to contribute about $5.3 trillion to global debt accumulation this year.”

Last month, the International Monetary Fund urged governments around the world to resist the temptation to cut taxes or increase spending in the hope of winning votes in the “biggest election year ever.”

“In this great election year, governments must exercise fiscal restraint to maintain healthy public finances,” the IMF said.

The Institute of International Finance's banking lobby group also warned that "increasing trade frictions and deeper geoeconomic fragmentation could reduce the ability of emerging markets to service external debt" as many developing economies struggle with high dollar-denominated debt.

“Although the relatively optimistic near-term global economic outlook is a positive factor for debt dynamics, stubborn inflation, especially in the United States, remains a major risk, putting upward pressure on global financing costs,” it said.

“Increasing trade frictions and geopolitical tensions also represent significant potential headwinds for debt markets. While China aims to become the world’s leading supplier of new clean energy technologies, tighter supply chain restrictions, fueled by industry-specific protectionist policies, could keep Inflation and interest rates are higher than pandemic levels. Such a scenario would undermine trade and investment flows and further reduce the ability of emerging and frontier markets to service external debt.