Riding the Global Debt Rollercoaster

IMF Blog, December 12, 2022

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Total public and private debt decreased in 2021 to the equivalent of 247 percent of global gross domestic product, falling by 10 percentage points from its peak level in 2020.
Expressed in dollar terms, global debt reached a record $235 trillion in 2021.
Private debt decreased by 6 percentage points to 153 percent of GDP in 2021.
Public debt declined by 4 percentage points to 96 percent of GDP in 2021—the largest such drop in decades.
Global debt remained nearly 19 percent of GDP above pre-pandemic levels at the end of 2021.

Advanced economies: both private and public debt fell by 5 percent of GDP in 2021, reversing almost one-third of the surge recorded in 2020.
Emerging markets (excluding China): the fall in debt ratios in 2021 was equivalent to almost 60 percent of the 2020 increase, with private debt falling more than public debt.
Low-income developing countries: total debt ratios continued to increase in 2021, driven by higher private debt.
Selected country outcomes:
- Brazil, Canada, India, and the United States: the economic rebound and rise in inflation pushed debt down by more than 10 percentage points of GDP, although actual debt fell less owing to the financing needs of government and the private sector.
- China and Germany: public debt increased as large deficits more than compensated for the rise in nominal GDP.

Large fluctuations in economic growth:
- The pandemic recession produced a pronounced drop in GDP and a sharp rise in debt-to-GDP ratios in 2020.
- The strong rebound in GDP in 2021 helped drive the fall in debt ratios.
High and more volatile inflation:
- Inflation rates fell significantly in the first year of the pandemic and rose sharply in 2021 in many countries.
- Inflation and output moved together during 2020–2021, inducing large swings in nominal GDP that affected debt ratios.
Effects of economic shocks on budgets:
- Debt and deficits increased significantly in 2020 because of the recession and sizable support measures.
- In 2021, fiscal deficits declined but remained above pre-pandemic levels.

The economic rebound helped to reduce public debt ratios between 2 and 3.5 percent of GDP, with the largest effect among advanced economies.
Inflation shaved off between 1.5 and 3 percentage points of public debt (the effect was more pronounced in emerging markets).
Fiscal deficits increased public debt by around 4.5 percent of GDP, with considerable variation across countries.

The weaker growth outlook and tighter monetary policy call for prudence in managing debt and conducting fiscal policy.
Relief to debt dynamics from “inflation surprises” and the temporary growth rebound cannot be assumed permanent.
If high inflation becomes persistent, spending will increase (for example, on wages) and investors will demand a higher inflation premium to lend to governments and the private sector.
Governments should adopt fiscal strategies that:
- Help reduce inflationary pressures now.
- Reduce debt vulnerabilities over the medium term.
- Contain expenditure growth while protecting priority areas, including support to those hardest hit by the cost-of-living crisis.
Strong fiscal strategies would:
- Facilitate the work of central banks.
- Allow for smaller increases in interest rates than would otherwise be necessary.
- Help sustain confidence in long-run stability, which is particularly valuable in times of turbulence.

This blog incorporates research by Youssouf Kiendrebeogo, Virat Singh, Zhonghao Wei, Andrew Womer, and Chenlu Zhang.

Global Debt Monitor — Section 1
- Global Debt Monitor — Section 1 (Markdown version)
- Global Debt Monitor — Section 1 (PDF)