Why the recent debt buildup is a concern, in four charts

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Since 2010, debt in emerging market and developing economies has grown to record highs.  Current low interest rates —which markets expect to be sustained in the medium term—appear to mitigate some of the risks associated with high debt. However, emerging market and developing economies (EMDEs) also face weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood of the current debt wave ending in crises and, if crises were to take place, to alleviate their impact.

1. Debt has reached a record-high

Global debt reached a record-high of about 230 percent of global GDP in 2018.  Total EMDE debt also reached an all-time high of about 170 percent of GDP in 2018, an increase of 54 percentage points of GDP since 2010.


Debt in EMDEs

Debt in EMDEs
Source: International Monetary Fund; World Bank.

Note: Dashed lines refer to EMDEs excluding China. Aggregates calculated using current U.S. dollar GDP weight and shown as a 3-year moving average. Gray vertical lines represent start of debt waves in 1970, 1990, 2002, and 2010.

2. Post-crisis debt accumulation has been exceptionally rapid

Over the past fifty years, there have been four historical waves of debt accumulation:  1970-89, 1990-2001, 2002-09, and since 2010. The latest wave, which started in 2010, has been the largest, fastest and most broad-based increase of the four.


Annual average change in total debt

Annual average change in total debt
Source: International Monetary Fund; World Bank.

Note: Annual average change in debt calculated as total increase in debt-to-GDP ratios over the duration of a wave, divided by the number of years in a wave.

3. Both private and public sectors have been accumulating debt

Rapid increases in debt are common among EMDEs. Between 1970 and 2009, the sector accumulating debt shifted from the public to the private sector. However, since 2010, both governments and private sectors have rapidly accumulated debt.


EMDEs in rapid debt accumulation episodes

EMDEs in rapid debt accumulation episodes
Source: International Monetary Fund; World Bank.

Note: Share of EMDEs in the sample that are in rapid debt accumulation episodes. Rapid debt accumulation episodes are defined as years in which the change in the debt-to-GDP ratio from its trough to its peak exceeds one standard deviation.

4. Rapid debt buildup has, in the past, been associated with financial crises.

Roughly half of the rapid debt accumulation episodes in EMDEs have been associated with financial crises.  Episodes with crises featured significantly weaker output, consumption and investment growth.


Share of national debt accumulation episodes associated with financial crises

Share of national debt accumulation episodes associated with financial crises
Source: International Monetary Fund; Laeven and Valencia (2018);World Bank.

Note: Crisis dates from Laeven and Valencia (2018) and include currency crises, sovereign debt crises and systemic banking crises. Sample period covers 1970-2018
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Johannes Linn
September 10, 2021

Wouldn't it make sense to look also at debt service ratio metrics in addition to debt stock ratios? With interest rates at an all-time low, debt service is likely to look less threatening that debt stock data.

Rongming Wu
September 10, 2021

This is the most important topic related to the realization of 2030 Agenda

Olimpio
September 10, 2021

There is data available to add capital goods investments to your charts? Would allow we visualize how much goes to speculative debt...

N Angula
September 10, 2021

My country Namibia is accumulating Public Debt at alarming rate! Could you look at its debt profile and advise!

Hemant Kolhapure
September 10, 2021

Indian Economy since Demonitisation done in November 2017 and thereafter GST trapped in the recession, which is due to lack of demand and purchasing power. To come it out Government is endeavouring to enhance credit through Banking system but no demand is there for loans. How Indian Economy can resolve the issue by not aggravating the problem further

Ms Joyce IROKA
September 10, 2021

Dear Peter,
i am not happy in your blog and publication i do not care if you publish it world widely, when it comes to reality the western countries are protected , i do not mind the high protection given to the pulled countries , what am concern right now is Africa has not benefit any fund which will lead world bank debt so mention those whom have been collecting cash from world bank, i am going to send world message on your publication.
Economic we both read .VOCATION REALISE ON AGRIC EMPOWERMENT FOUNDATION need fund for its Papal Project so visit the site www.vraef.com, kindly withdraw this angry statement of yours unless you publish those owing world bank
Thanks
Ms Joyce IROKA
Project Director

Piet van Heesewijk
September 10, 2021

Hi Peter, is it possible to break down debt accumulated by SOEs in these charts?

Piet van Heesewijk
September 10, 2021

Is it possible to indicate the level of debt incurred by SOEs in these charts?

Jansette
September 10, 2021

Thank you for the article. What is your conclusion it is not clear? Do you anticipate a large debt crisis in return in EMDEs where debt is not economically productive ie did not generate investments and did not achieve higher per capita income thereby reduced consumption?

Hussein Mobarak
September 10, 2021

That's very good , but if we can download these charts would be great.

Ann Kele
September 10, 2021

Yes, it is a real problem. The younger generations are expected to invest, to create jobs and be able to pay back their debts. The older generations should have savings/properties, stabile financial background as a result of their work, investments or other lifetime activities. However, this is not the case ! The Bank systems and the big service providers are suffering from the unpaid bills and the high costs of the uncollected depts.The government debts are increasing in many countries because they have to fight against the increasing costs of the health and social care taking also into account the human rights. The goverments can get authorisation to reallocate their expenditure for the favour of certain groups of the society including support, subsidies for the poorest. It is a real problem when the number of the poor people requesting social help and heathcare free of charge are rapidly increasing from outward sources (the lack of effective border control).

Harold Greenstein
September 10, 2021

Looking forward to participating!

Raghavan Guruswamy
September 10, 2021

Thanks a lot for the Infographics.
What do China's figures look like? I ask, in order to draw inference regarding their way of managing the economy, especially, in the context of State control of resources.

Miren Sanchez
September 10, 2021

Hi, Peter. In your article: "Why the recent debt buildup is a concern, in four charts," published 28 January 2020, the graph in #3 seems to be erroneous with private debt colored blue (more than private and government debt combined, legend showing this is the red portion). Just flagging. :) Interesting article.
Thanks.