WASHINGTON, United States, Jan 5 – Global debt surged in the first nine months of 2016 to 325 percent of GDP, and debtors now face the burden of rising interest rates and a strong dollar, according to a new report Wednesday.
More than $1.3 trillion in bonds and loans fall due this year, including $48 billion in China and $32 billion in Mexico, the Institute of International Finance, a Washington-based banking group, said in its quarterly report.
“With borrowing costs across mature and emerging markets on the rise in the wake of the US presidential election, concerns about high global debt levels have returned to the fore,” the IIF cautioned.
Global debt ballooned by more than $11 trillion in the first three-quarters of the year, and concerns are especially acute amid subdued growth, “still-weak corporate profitability,” and a stronger US dollar — “particularly for governments and firms with heavy refinancing needs,” the report said.
With US President-elect Donald Trump emphasizing protectionist trade policies, the group warned this “could also weigh on global financial flows, adding to these vulnerabilities.”
The uncertainty around the UK’s exit from the European Union also poses a risk for debt markets, and possibly higher borrowing costs, given London’s key role in debt issuance.
The increase has been most pronounced for general government debt (up by $5.3 trillion to some $60 trillion), followed by the non-financial corporate sector (up by $2.6 trillion to $63 trillion).
China, at $710 billion, accounted for the bulk of new emerging market government borrowing, which was almost three times higher than in 2015.
And while local currency issuance accounted for 85 percent of total emerging market debt issuance, foreign currency-denominated debt more than doubled in 2016, rising to $130 billion from $50 billion in 2015.
This is a concern because the rising US dollar will make repayments more expensive for those governments and companies. The American currency has recently risen to a 14-year high, up about 4 percent last year.
In addition, the creditworthiness of corporate borrowers in emerging markets “is likely to remain a significant source of concern in 2017,” with 240 non-financial corporate downgrades last year, including more than 100 in Brazil and 40 in China.
Total US debt rose $2.5 trillion to over $70 trillion in the third quarter, which is more than 335 percent of GDP. Government and consumer debt in the country hit record highs.