THE ALARMING INCREASE IN GLOBAL DEBT

Most of the heavy borrowings by nations in recent years have not been put to productive use. This has made the world much more vulnerable to future shocks

- SATYAJIT DAS

GLOBAL debt has reached around $313 trillion or 330 percent of world GDP, up from around $210 trillion a decade ago. Around half the rise is in developed economies, such as the US, Germany and France. Emerging markets, such as China, India, Russia, Argentina, Malaysia and South Africa, have also registered large increases. Since 2000, China's total debt has nearly tripled to around 288 percent of GDP.

Public borrowings, particularly in developed economies, have grown. As a percentage of total output, government debt in Japan, the US and the UK has reached 252 percent, 127 percent and 106 percent, representing increases of 116 percent, 71 percent and 69 percent between 2000 and 2024.

The drivers include increased reliance on debt-funded economic activity as well as the aftermath of the 2008 global financial crisis, and the pandemic. The world's current level of borrowings are highly problematic.

Debt can be useful in matching needs and available funds over time. Loans used to finance expenditures that generate adequate cash flows to ultimately repay the loan with market interest rates are sustainable. But instead, much new debt has been directed to potentially unproductive uses.

Household and personal debt has financed housing and consumption. Borrowers have taken out increasingly large mortgages, reliant on the collateral value of property that is arguably overpriced as a result of nearly two decades of abnormally low interest rates and manipulation of supply. Households equate borrowings to income to support their spending because of stagnant incomes, reflecting the reduced share of GDP accruing to labour relative to businesses and inflation pushing up the cost of goods and services.