Since COVID-19 started its spread around the world in 2020, the global economy has been put to the test with supply chain disruptions, price volatility for commodities, challenges in the job market, and declining income from tourism. To analyze the extent of global debt, we’ve compiled debt-to-GDP data by country from the most recent World Economic Outlook report by the IMF.
What is the main risk of a high debt-to-GDP ratio?
A rapid increase in government debt is a major cause for concern. Generally, the higher a country’s debt-to-GDP ratio is, the higher chance that country could default on its debt, therefore creating a financial panic in the markets. The World Bank published a study showing that countries that maintained a debt-to-GDP ratio of over 77% for prolonged periods of time experienced economic slowdowns. COVID-19 has worsened a debt crisis that has been brewing since the 2008 global recession.
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| Source: World Economic Outlook Report (October 2021 Edition) |
The IMF Warns of Interest Rates
Global debt reached $226 trillion by the end of 2020, seeing the biggest one-year increase since World War II. Borrowing by governments accounted for slightly over half of the $28 trillion increase, bringing global public debt ratio to a record of 99% of GDP. As interest rates rise, IMF officials warn that higher interest rates will diminish the impact of fiscal spending, and cause debt sustainability concerns to intensify.
Source: Raul Amoros, Christina Kostandi | Visual Capitalist
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