## Debt: Use It Wisely - Press Conference Opening Remarks

_IMF News, October 6, 2016_

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## Bibliographic details
- Published: October 6, 2016

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### Key findings on global debt
- Global debt is at record highs and rising.
- Over the last fifteen years the debt of the nonfinancial sector has increased significantly, reaching $152 trillion by 2015 (225 percent of world GDP).
- About two-thirds (or $100 trillion) is the debt of the private sector; the remainder is public debt.
- Public debt increased from below 70 percent of GDP at the beginning of the century to almost 85 percent in 2015.
- Excessive private debt is a major headwind against the global recovery and a risk to financial stability.
- Rapid increases in private debt often end up in financial crises; financial recessions are longer and deeper than normal recessions.
- Entering a financial recession with a weak fiscal position results in even larger output losses, particularly in emerging market economies that tend to cut government spending in times of crisis.

### Cross-country heterogeneity
- Private debt is concentrated in advanced and a few emerging market economies.
- In advanced economies deleveraging has been uneven; in many cases private debt has continued rising.
- Public debt has surged in some advanced countries partly due to the migration of bad private-sector debt onto government balance sheets.
- Private debt is also high in some systemic emerging market economies, including China.
- Low-income countries generally have low debt levels, but these have been on the rise recently.
- The sharp diversity across countries implies the need for country-specific policy diagnosis and prescription: no one size fits all.

### Growth, deleveraging, and nominal growth dynamics
- Low nominal growth is a major driver behind slow deleveraging in advanced economies.
- Comparing the United States and the euro area: the United States experienced a larger increase in private debt pre-crisis but reduced it more in the aftermath.
- The United States also enjoyed higher nominal growth—more than 10 percentage points in cumulative terms over the period since 2007.
- The weak macroeconomic environment explains about half of the increase in public debt since the onset of the global financial crisis.
- Deleveraging is made difficult by low nominal growth.

### Policy priorities and recommendations
- Fiscal policy can do more to restore growth and stability.
  - Targeted fiscal interventions—government-sponsored programs to help restructure private debt and public support for financial sector restructuring—can be very effective in reducing output losses associated with private sector deleveraging.
  - Such policies could be particularly useful in China.
  - To work, these policies need to be adequately designed and subject to strong governance principles.
  - Inaction or delayed action can be very costly.
- Fiscal policy cannot do it alone.
  - A comprehensive, consistent, and coordinated approach using monetary, fiscal, and structural policies is needed to harness synergies across policies.
  - Consistent policy frameworks over time can anchor long-term inflation expectations and lead to an eventual sustainable downtrend in government debt-to-GDP ratios.

### Focus for emerging markets and low-income countries
- The focus should be on growth-friendly fiscal policy.
- In some emerging-markets and low-income countries fiscal deficits have increased rapidly over the last year on the back of lower commodity prices and a less supportive global environment.
- The speed of adjustment will depend on available buffers.
- Improving the quality of public finances and strengthening fiscal frameworks would enhance policy credibility and resilience.
- In Latin America, financing costs rose the most where fiscal deficits increases were coupled with the lack of credible fiscal frameworks.
- Among low-income countries, particularly oil producers, adjustment has been slow and piecemeal, often forced by lack of financing and effected mainly through across-the-board spending compression.
- Tax capacity is insufficient in many of these countries, hampering their ability to close infrastructure gaps and to achieve other sustainable development goals.

### Prevention and structural measures
- History shows it is very easy to underestimate the risks associated with private debt during the upswing; preventive measures are crucial.
- Regulatory and supervisory policies should ensure the monitoring and sustainability of private debt.
- Tax distortions favoring debt over equity should be gradually eliminated.

*Vitor Gaspar, Director, Fiscal Affairs Department — October 6, 2016*

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## References

- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/10/06/am16-sp100516-debt-use-it-wisely-opening-remarks_