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China and US lead rise in global debt to record $305 trillion – IIF


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NEW YORK — The world’s two largest economies borrowed the most in the first quarter as global debt rose to an all-time high of more than $305 trillion, while the total debt-to-output ratio fell, Institute data showed on Wednesday of International Finance.

China’s debt rose $2.5 trillion in the first quarter and the United States added $1.5 trillion, the data showed, while total euro-zone debt fell for the third consecutive quarter.

The analysis found that many countries, both emerging and developed, are entering a cycle of monetary tightening – led by the US Federal Reserve – with high levels of dollar-denominated debt.

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“As central banks continue to tighten policies to curb inflationary pressures, higher borrowing costs will increase debt fragility,” the IIF report said.

“The impact could be more severe for emerging market borrowers who have a less diversified investor base.”

The return on the 10-year benchmark is up about 150 basis points so far this year, reaching its highest point since 2018 earlier this month.

SOVEREIGNS BEWARE!

Non-bank corporate and government borrowing were the largest sources of the increase in borrowing, with non-financial debt rising to over $236 trillion, some $40 trillion higher than two years ago when the COVID-19 pandemic struck.

Government debt has grown more slowly over the same period, but as borrowing costs rise, sovereign balance sheets remain under pressure.

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“With government borrowing needs still well above pre-pandemic levels, higher and more volatile commodity prices could force some countries to increase government spending even further to avert social unrest,” the IIF said.

“This could be especially difficult for emerging markets that have less budgetary space.”

The lack of transparency has also become a burden on emerging markets, where total debt is approaching $100 trillion from $89 trillion a year ago.

“The lack of timely disclosure of sovereign debt obligations, very limited coverage of contingent liabilities (including SOE liabilities) and the extensive use of confidentiality clauses are the main barriers that create information asymmetries between creditors and debtors,” the IIF report said, noting that it drives up borrowing costs while limiting access to private capital markets for emerging market borrowers.

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The global debt-to-GDP ratio fell to 348%, about 15 percentage points lower than the record set a year ago, with significant improvements in European Union countries. Vietnam, Thailand and Korea recorded the largest increases to that extent, according to the IIF.

“Growth is expected to slow significantly this year, adversely affecting debt dynamics,” the IIF report said.

“Given the tight lock-downs in China and tighter global financing conditions, the expected slowdown is likely to limit or even reverse the downward trend in debt-to-GDP ratios.”

(Reporting by Rodrigo Campos; editing by Chizu Nomiyama)

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This post China and US lead rise in global debt to record $305 trillion – IIF

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