Global debt reaches record $226 trillion amid COVID-19 pandemic, the largest one-year debt surge since World War II

Global debt reached a record $226 trillion in 2020 amid COVID-19 pandemic economic turmoil, the largest one-year debt surge since World War II, according to the latest data released by the International Monetary Fund (IMF) on Wednesday.

Advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020.

“These countries were able to expand public and private debt during the pandemic, thanks to low interest rates, the actions of central banks (including large purchases of government debt), and well-developed financial markets. But most developing economies are on the opposite side of the financing divide, facing limited access to funding and often higher borrowing rates,” wrote IMF economists Vitor Gaspar, Paulo Medas, and Roberto Perrelli in a joint column published on Wednesday.

The 2021 update of the IMF’s Global Debt Database shows that global debt rose by 28 percentage points to 256 percent of GDP, in 2020.

The IMF’s Global Debt Database (GDD) is seen as a unique dataset covering private and public debt for virtually the entire world dating back to the 1950s.

Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP.

The share of public debt in global debt reached new highs not seen in more than 50 years, reflecting a large cumulative increase since the global financial crisis, while private debt rose by 10 percent in 2020, partly reflecting the support of central banks and government.

However, the rise in debt varied significantly across countries given very unequal capacity of governments and central banks to support households and businesses during the pandemic and a deep economic recession.

Private debt from non-financial corporations and households also reached new highs, the IMF said, noting that debt increases are particularly striking in advanced economies, where public debt rose from around 70 percent of GDP, in 2007, to 124 percent of GDP, in 2020. Private debt, on the other hand, rose at a more moderate pace from 164 to 178 percent of GDP, in the same period.

In a column published on Wednesday, IMF economists Vitor Gaspar, Paulo Medas, and Roberto Perrelli wrote that, “Debt was already elevated going into the crisis, but now governments must navigate a world of record-high public and private debt levels, new virus mutations, and rising inflation.”

They said, “Looking at overall trends, we see two distinct developments. Public debt now accounts for almost 40 percent of total global debt, the highest share since the mid-1960s. The accumulation of public debt since 2007 is largely attributable to the two major economic crises governments have faced—first the global financial crisis, and then the COVID-19 pandemic.

“Advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020. These countries were able to expand public and private debt during the pandemic, thanks to low interest rates, the actions of central banks (including large purchases of government debt), and well-developed financial markets. But most developing economies are on the opposite side of the financing divide, facing limited access to funding and often higher borrowing rates.

“In advanced economies, fiscal deficits soared as countries saw revenues collapse due to the recession and put in place sweeping fiscal measures as COVID-19 spread. Public debt rose 19 percentage points of GDP, in 2020, an increase like that seen during the global financial crisis, over two years: 2008 and 2009. Private debt, however, jumped by 14 percentage points of GDP in 2020, almost twice as much as during the global financial crisis, reflecting the different nature of the two crises.

“During the pandemic, governments and central banks supported further borrowing by the private sector to help protect lives and livelihoods. Whereas during the global financial crisis, the challenge was to contain the damage from excessively leveraged private sector.

“Emerging markets and low-income developing countries faced much tighter financing constraints, but with large disparities across countries. China alone accounted for 26 percent of the global debt surge. Emerging markets (excluding China) and low-income countries accounted for small shares of the rise in global debt, around $1-$1.2 trillion each, mainly due to higher public debt.

“Nevertheless, both emerging markets and low-income countries are also facing elevated debt ratios driven by the large fall in nominal GDP in 2020. Public debt in emerging markets reached record highs, while in low-income countries it rose to levels not seen since the early 2000s, when many were benefiting from debt relief initiatives.”