Global private debt drops

According to an International Monetary Fund blog post jointly authored by Vitor Gaspar, Carlos Goncalves and Marcos Poplawski-Ribeiro, global private debt fell by 2.8 percentage points to 143 percent of GDP, below the 2019 level.

- MARIANNE GO

According to an International Monetary Fund blog post jointly authored by Vitor Gaspar, Carlos Goncalves, and Marcos Poplawski-Ribeiro, global private debt fell by 2.8 percentage points to 143 percent of GDP, below the 2019 level. It more than offset the increase in public debt.

According to the latest IMF Fiscal Monitor, global public debt is high, rising, and risky.

According to the three IMF analysts, empirical analysis points to low growth prospects as the main driver of the fall in private debt in 2023. They point out that the way households and businesses react to current and expected future growth is very important for private debt. Given weak growth prospects, many firms and households are opting to pay down debt. The fall in private debt slowed compared to 2022 mainly because of a reduction in the contribution from unexpected inflation to debt erosion.

This observation of low private debt has similarly been cited by Philippine analysts who have stressed the need for local private consumption (both by households and businesses) to pick up for the Philippine economy to resume growth next year and beyond.

The IMF analysts noted that unexpected inflation was a major factor in 2021 and 2022. Since debt is fixed in nominal terms, unexpected inflation can actually erode the real value of debt and lower its ratio to GDP. In 2022, inflation reached levels unprecedented since the Great Inflation of the 1970s and early 1980s.