Global debt is likely to resume its rising trend after a dip last year, the International Monetary Fund warned, due to rebounding economic growth and stable inflation, as well as a sustained issuance of debt by China.

Total debt – government, private business and household – fell 10 percentage points to 238 per cent of global GDP in 2022, the IMF said in its latest update of global debt on Wednesday (Sep 13). Private and government debt both declined from the previous year, with the latter erasing about half of its increase since the pandemic.

In the medium term, however, debt will likely continue to rise because the global rebound from pandemic restrictions is fading and inflation is projected to stabilise, the IMF said.

“Global debt appears to have returned to its historical upward trend,” the IMF said. “Managing debt vulnerabilities should be key.”

China was the biggest exception to the global debt reduction last year, as it issued more public debt to support its economy through lockdowns while also facing a relatively slow pace of inflation. Total debt in China rose 7.3 percentage points to 272 per cent of GDP in 2022, the IMF estimates.

“China has been an important force driving global debt in recent decades,” the IMF said in its report. “The rise in China’s debt ratio to GDP was unparalleled in other large economies.”

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

China’s debt-to-GDP ratio has grown from about 70 per cent in the mid-1980s, when it was near the average for most emerging economies, including a “considerably steeper” climb since 2009.

While that puts China’s debt-to-GDP ratio close to the US level of about 274 per cent, it’s smaller in dollar terms – US$47.5 trillion compared with nearly US$70 trillion.

The IMF highlighted how government spending has left businesses and households with lighter liabilities on their balance sheets than before the Covid-19 pandemic. In many countries, especially in advanced economies and emerging markets excluding China, private debt is now below pre-pandemic levels, it said.

But that has been more than offset by a rise in government debt, meaning total debt to GDP remains 9 percentage points above its pre-pandemic level.

High levels of debt by historical standards means governments should try to boost growth and increase monitoring of household and non-financial corporate debt burdens and related financial stability risks, the IMF said. BLOOMBERG