## Big Bad Actors: A Global View of Debt

_IMF Blog, October 5, 2016_

## Source details

**Canonical URL:** [Big Bad Actors: A Global View of Debt](https://www.imf.org/en/blogs/articles/2016/10/05/big-bad-actors-a-global-view-of-debt)

## Other formats

- [Markdown version](/en/blogs/articles/2016/10/05/big-bad-actors-a-global-view-of-debt/index.md)
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## Bibliographic details
- Authors: Vitor Gaspar, Marialuz Moreno Badia
- Published: October 5, 2016

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### Overview
- Publication: Big Bad Actors: A Global View of Debt
- Authors: Vitor Gaspar, Marialuz Moreno Badia
- Date: October 5, 2016
- Central message: The October 2016 Fiscal Monitor provides the first near-global estimate of debt, showing record-high global debt that poses significant risks to the global recovery, with distinct patterns and risks across country groups.

### Key global statistics and summary findings
- Global debt amounts to $152 trillion or 225 percent of global GDP (Chart 1).
- Close to $100 trillion or about two thirds are liabilities of nonfinancial firms and households (private debt); the remainder is public debt.
- High debt levels represent a major headwind against the global economic recovery and exacerbate the risk of a debt-deflation spiral.

### Trends by country group
- Advanced economies:
  - Deleveraging has been uneven across advanced economies (Chart 2, blue bar).
  - Private debt ratios have continued rising in most countries within this group.
  - Public debt has increased, partly due to migration of bad private debts onto public balance sheets.
  - Lack of progress in deleveraging is traced mainly to the low nominal growth environment.
  - Comparison: The United States reduced private debt much more than the euro area in the aftermath of the crisis but enjoyed higher growth rates as well (Chart 4).
- Emerging market economies:
  - Low interest rates have led to a surge in nonfinancial corporate debt in a few systemically important emerging market economies, notably China (Chart 2, red bar).
  - The recent debt expansion in emerging market economies raises questions about the underlying health of fiscal positions, given historical precedents in advanced economies.
- Low-income countries:
  - Both private and public debt have increased thanks to deeper financial markets and improved market access, though debt ratios remain generally low.
  - Advances in microfinance lending and mobile banking have contributed to financial inclusion.
  - Financial development is positive provided debts remain sustainable.

### Risks and implications
- Excessive private debt is associated with financial crises; financial recessions are longer and deeper than normal recessions and cause larger output losses and higher job losses.
- Excessive private debt can mutate into public debt, worsening fiscal positions.
- Weak fiscal positions amplify the severity of financial recessions (Chart 3), particularly in emerging market economies where public spending is often slashed in crises.
- Even absent a crisis, high private debt can hamper growth as indebted borrowers cut consumption and investment sharply.
- The historical analogy to Irving Fisher: too high debt and too low inflation are persistent dangers, especially for advanced economies.

### Policy recommendations and corrective measures
- Avoidance target:
  - Debt is fundamental for entrepreneurship and innovation; the policy focus should be on avoiding excessive private debt, not debt per se.
- Regulatory and supervisory measures:
  - Ensure monitoring and sustainability of private debt through regulatory and supervisory policies.
- Tax policy:
  - Gradually phase out tax distortions favoring debt over equity in corporations, financial and non-financial.
- Growth-friendly fiscal policies:
  - Use growth-friendly fiscal policies to facilitate adjustment in countries mired in excessive private debt, depending on country circumstances and available fiscal resources.
  - Resources may come from prior saving and reducing public debt in good times.
- Crisis-resolution tools where financial systems are under severe stress:
  - Early resolution of underlying problems is critical.
  - Government-sponsored programs to reduce private debt (for example, subsidies for creditors to lengthen maturities or guarantees) and measures to accelerate balance-sheet cleanups (for example through asset management companies) can be highly effective.
- Design principles to minimize costs and moral hazard:
  - Target measures to specific sectors or individuals.
  - Subject interventions to conditionality.
  - Involve burden sharing with borrowers.
  - Accompany interventions with strong insolvency and bankruptcy procedures.
- Complementary policies:
  - Fiscal policy must be supported by monetary and structural policies, implemented within consistent and credible policy frameworks.

### Concluding outlook
- The authors argue for eliminating the “big bad actors” of excessive debt and low inflation and emphasize the need for coordinated, well-designed fiscal, regulatory, monetary, and structural policies to enable a transition toward a renewed acceleration in nominal growth.

*Source: Big Bad Actors: A Global View of Debt, Vitor Gaspar and Marialuz Moreno Badia, October 5, 2016.*

---

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---

## References

- [عربي](http://blog-montada.imf.org/?p=4501)
- [Read the report](http://www.imf.org/external/ns/cs.aspx?id=262)
- [Fiscal issues at the IMF](http://www.imf.org/external/np/exr/key/fiscal.htm)
- [Fiscal Monitor](http://www.imf.org/external/pubs/ft/fm/2016/02/fmindex.htm)
- [https://www.imf.org/wp-content/uploads/2016/09/global-debt-record-highs.gif](https://www.imf.org/wp-content/uploads/2016/09/global-debt-record-highs.gif)
- [https://www.imf.org/wp-content/uploads/2016/09/countries-not-in-same-boat.gif](https://www.imf.org/wp-content/uploads/2016/09/countries-not-in-same-boat.gif)
- [https://www.imf.org/wp-content/uploads/2016/09/weak-fiscal.gif](https://www.imf.org/wp-content/uploads/2016/09/weak-fiscal.gif)
- [https://www.imf.org/wp-content/uploads/2016/09/fast-deleveraging.gif](https://www.imf.org/wp-content/uploads/2016/09/fast-deleveraging.gif)

_Source: https://www.imf.org/en/blogs/articles/2016/10/05/big-bad-actors-a-global-view-of-debt_