Global debt soared to a new record high of $281 trillion in 2020: Coupled with a sharp pandemic-driven de- cline in government and corporate revenues, total private and public debt for the 61 countries in our sample rose by $24 trillion last year, making up over a quarter of the $88 trillion rises over the past decade (Chart 1).
Debt outside the financial sector hit $214 trillion, up from $194 trillion in 2019 (Table 1).
Table 1: Sectoral Indebtedness*
Chart 1: Global debt hits a fresh record high in 2020
Few signs of stabilization—yet:
Global debt-to-GDP ratio surged by 35 percentage points (%pts) to over 355% of GDP in 2020. The upswing was well beyond the rise seen during the 2008 global financial crisis.
Back in 2008 and 2009, the increase in global debt ratio was limited to 10%pts and 15%pts, respectively. With global debt issuance still running above pre-COVID levels (supported by still-low borrowing costs), the rise in global debt ratios is expected to be relatively modest this year; the projected rebound in GDP will help.
However, debt trajectories may vary significantly—the pace of vaccination differs considerably across countries, and difficulty in vaccine rollout could delay recovery, prompting further debt accumulation.
For highly indebted countries facing ongoing fiscal constraints, difficulty in accessing and distributing vaccines could thus contribute to further debt strains, particularly in low-income countries.
Government debt tops 105% of GDP—up from 88% in 2019:
General government debt accounted for more than half of rising—up over $12 trillion in 2020 vs $4.3 trillion in 2019.
Unsurprisingly, mature markets saw the biggest increase in government debt (+$10.7 trillion) as the fiscal response to the pandemic was constrained in most emerging markets.
While some pandemic-related fiscal measures will likely expire in 2021, budget deficits are set to remain well above pre-pandemic levels. We expect global government debt to increase by another $10 trillion this year and surpass $92 trillion by end-of 2021.
Chart 2: Sharp surge in debt-to-GDP ratios (percentage points, the estimated change in debt ratios in 2020)
Although sizeable budget deficits have been essential to tackle the crisis, finding the right exit strategy could be even more challenging than after the 2008/09 financial crisis.
Political and social pressure could limit governments’ efforts to reduce deficits and debt, jeopardizing their ability to cope with future crises. This could also constrain policy responses to mitigate the adverse impacts of climate change and natural capital loss–see our latest Sustainable Debt Monitor.
Non-financial private sector debt (household and corporate) hit 165% of GDP in 2020, up from 124% in 2019. Supportive government measures such as debt moratoria and loan guarantee programs—while much needed— pushed non-financial corporate debt some 8 percentage points higher, to 100% of GDP.
Firm-level data suggest that many large firms, particularly in the U.S. and Japan, have used this additional borrowing to build up their cash holdings, though small firms have had more difficulty building these buffers.
Household debt increased by 4%pts to 65% of GDP in 2020, in part reflecting loan moratoria and the resilience of residential real estate markets to the pandemic.
Financial corporates saw the largest annual jump in debt ratios in over a decade:
Debt in the financial sector rose by over 5%pts to 86% of GDP in 2020. This was the largest increase since 2007 and the first annual rise since 2016.
Mature markets saw the biggest increases in debt ratios last year (outside the financial sector). The upswing was particularly sharp in Europe, with non-financial sector debt-to-GDP ratios in France, Spain, and Greece increasing some 50%pts.
The rapid debt build-up was mostly driven by general governments, particularly in Greece, Spain, the UK, and Canada. Switzerland was the only mature market economy in our sample recording a modest decline in the government debt ratio. Balance sheet vulnerabilities in the non-financial corporate sector have also increased significantly across many countries, particularly in France.
In emerging markets, China saw the biggest rise in debt ratios (ex-financials), followed by Turkey, Korea, and the UAE. South Africa and India recorded the largest increases in government debt ratios while the run-up in corporate debt was the largest in Peru and Russia.
Emerging market FX debt remained broadly stable at $8.6 trillion in 2020 as sharp losses in EM currencies reduced firms’ incentives to borrow in foreign currency. Debt build-up was relatively limited across frontier markets and low-income countries, in part reflecting the limited fiscal space to support firms and households.
Corporate zombification:
As the global recovery gathers pace, governments will be developing exit strategies from exceptional fiscal support measures. Government guarantees and debt moratoria to date have been successful in preventing a surge in business bankruptcies.
The decline in the number of firms filing for insolvency has been extraordinary across many European countries, though China and Turkey have seen some pickup—see our latest Weekly Insight: Chinese Debt—still on the rise.
Premature withdrawal of supportive government measures could mean a surge in bankruptcies and a new wave of non-performing loans, with financial stability implications for the banking sector.
However, sustained reliance on government support could pose systemic risks to the financial system as well. A prolonged period of loan guarantees—coupled with sustained low-interest rates—could well encourage still more debt accumulation by the weakest and most indebted corporates.
