IIF: Global Debt Accumulation Continues to Decline in Q3

The Institute of International Finance (IIF) revealed that the accumulation of debt in the global economy continued to decline during the third quarter of 2022, amid a decline in borrowing appetite resulting from high interest rates, which in turn also leads to a significant increase in borrowing costs.

The institute's quarterly global debt market monitoring report showed that total global debt fell by $6.4 trillion in the three months to September, to nearly $290 trillion.

This continued decline is due to the appreciation of the dollar, which makes loans denominated in other currencies appear smaller when denominated in US currency.

The risk now is that reining in inflation and raising interest rates by central banks will force a sharp increase in debt-service costs for indebted households, firms and governments.

“The global interest bill is about to rise .. High financing costs represent a major source of risks for financial and social stability across countries with highly indebted sectors,” according to the institute's economists.

The risks are concentrated among low-income families and small businesses, which are more exposed to borrowing at a volatile exchange rate, according to the report. He added that among governments, advanced G7 economies, as well as emerging markets in Europe and sub-Saharan Africa, will face much larger interest payments, according to the report.

Debt has fallen to 343% as a share of the global economy, about 20% below its peak during the pandemic last year. High inflation rates in many economies helped relieve debt burdens relative to rapidly rising nominal GDP.