Global Debt Increased by 2,650 Trillion Won Due to COVID-19

IIF "Global Debt Increased by $24 Trillion Last Year, Totaling $281 Trillion"

[Asia Economy Reporter Park Byung-hee] The International Institute of Finance (IIF) announced that global debt surged by $24 trillion (approximately 26,500 trillion KRW) last year as government finances were massively deployed to respond to COVID-19.

The IIF explained that half of the $24 trillion increase in debt was due to support measures introduced by governments worldwide to combat COVID-19. The remaining half consisted of increases in corporate, bank, and household debt by $5.4 trillion, $3.9 trillion, and $2.6 trillion respectively. The total global debt, including the additional $24 trillion, was estimated at $281 trillion.

The global debt-to-GDP ratio rose to 355%, up 35 percentage points from 2019. The IIF noted that considering the debt-to-GDP ratio increased by 10 and 15 percentage points in 2008 and 2009 during the global financial crisis, respectively, last year’s rise was steep.

The IIF also forecasted that the debt-to-GDP ratio could increase significantly again this year. Although the GDP, which declined last year, is expected to grow this year, potentially limiting the rise in the debt ratio, the low benchmark interest rates make it likely that debt will continue to increase. The IIF stated, "Government sector debt is expected to increase by about $10 trillion this year, pushing total government debt beyond $92 trillion."

However, the IIF warned that reducing support policies could trigger a greater crisis. It added that responding to the post-COVID-19 situation might be more challenging than dealing with the aftermath of the financial crisis. The institute pointed out that if governments withdraw support measures prematurely, it could lead to a surge in non-performing loans and bankruptcies.

On the other hand, the increased debt could weaken the policy capacity to address future climate change and environmental issues. In any case, the situation inevitably poses a growing dilemma for governments.

By country, European nations showed a significant rise in debt ratios. The IIF stated that the increase in European countries’ debt ratios was mostly due to government debt. In particular, Greece, Spain, and the United Kingdom saw substantial increases in their debt ratios. For France, Spain, and Greece, the debt-to-GDP ratio of the non-financial sector rose by more than 50 percentage points. Among advanced countries, Switzerland was the only nation where the debt-to-GDP ratio decreased.

Among emerging countries, China’s debt ratio increased the most, with Turkey, Korea, and the United Arab Emirates (UAE) also experiencing significant rises. South Africa and India saw large increases in government debt ratios.

This content was produced with the assistance of AI translation services.