The Reserve Bank of India’s financial stability report has raised concerns about the risks of rising debt levels across the world particularly for emerging markets. According to the regulator’s report, the global debt is now more than that seen during the 2008 global financial crisis (GFC).
The report states that global debt has increased across all sectors and stood at $255 trillion in the December quarter of 2019. At over 322% of the gross domestic product (GDP), global debt is currently almost 40% or $87 trillion more than that seen during the onset of the global financial crisis in 2008.
Citing the International Institute of Finance (IIF), the report said that if the net government borrowing doubles from 2019 levels and there is a 3% contraction in global economic activity, it would lead to the world’s debt pile surging from 322% of GDP to over 342% of GDP in 2020.
One of the worst affected from the rising global debt levels will be emerging markets (EM) that have seen a surge in their financial liabilities since the GFC. RBI’s financial stability report said, “The debt of the 30 major EMs surged from $22 trillion in Q4 of 2007 to $71 trillion in Q4 of 2019.” Barring China, the foreign currency debt makes up 20% of the EM’s debt outside of the financial sector.
The report added that $20 trillion worth of bonds and loans will fall due for repayment by the end of 2020 from this, EMs will have to repay $4.3 trillion.