The global debt has declined - Newspaper Kommersant No. 171 (7372) of 09/16/2022

The global debt has declined - Newspaper Kommersant No. 171 (7372) of 09/16/2022



The level of global debt burden since the beginning of the year has decreased by $3.5 trillion to $300.1 trillion, the Institute of International Finance estimated. Debt reduction in nominal volume was recorded for the first time in four years. The number of placements of securities in the primary market fell due to the increase in the cost of borrowing, the same factor affected the rise in the cost of servicing and current debt. At the same time, the growth of rates in developed countries led to an increase in spreads relative to securities of issuers from developing countries.

After an increase of almost $2.5 trillion in the first quarter of this year, the level of global debt burden in the second quarter fell by $5.5 trillion to $300.1 trillion, experts from the Institute of International Finance (IIF) estimated. This is the first quarterly reduction since the third quarter of 2018.

Part of the decrease in debt in nominal volume is explained by the revaluation effect - the currencies of the largest developing countries since the beginning of the year have weakened by 12% against the US dollar, and a sharp reduction in the volume of securities issuance has also contributed. Thus, the volume of debt placed in developed markets decreased by $4.9 trillion to $201 trillion (the US and Canada were the only countries that increased their debt burden). Debt reduction in developing countries for the second quarter was about $600 million, bringing it down to $99 trillion. The debt-to-GDP ratio, after declining over four quarters in April-June 2022, reached 350%, including an increase of 3.5 percentage points in emerging markets, to a level of 252% of GDP. The IIF predicts that by the end of the year it will reach 352%.

Rising borrowing costs and weak investor risk appetite have dampened the interest of many borrowers in placements on the primary market this year, as long-term bond issuance by non-financial corporations has dropped to its lowest level since 2014. The volume of government bonds placed for eight months was 20% lower than in the same period in 2021. Adjusted for inflation, output indicators are at all at multi-year lows, is fixed in the IIF.

The rise in borrowing costs has also affected the ability of companies to service their debt — if since the beginning of the pandemic, the growth in the number of “zombie companies”, especially in the US and China, has been accompanied by a reduction in the number of bankruptcies, now, on the contrary, the cost of raising debt may lead to an increase in the number of announcements about default. The increase in rates in developed countries additionally affects emerging markets - this affects the expansion of spreads between the yields on bonds of these groups of states. Therefore, since the beginning of this year, the governments of developing countries have placed only $60 billion worth of Eurobonds, while a year earlier the issue for the same period amounted to $105 billion (Turkey and China are expected to be the largest Eurobond issuers until the end of 2023).

Some countries, such as Sri Lanka and Ghana, have already turned to the International Monetary Fund (IMF) for help because of the problems. An additional risk for developing countries is the rise in food prices (their increase has been observed since mid-2020). In total, according to the Food Security Information Network, 35 countries are facing a food crisis, 21 of them experience such problems chronically. 16 countries (15 African countries and Afghanistan) have problems with the level of debt burden, with 80% of the debt accounted for by governments of other countries and international organizations. China is the largest creditor in this group of countries (its share is 18%). The IIF proposes to partially replace this burden, which is usually expressed in foreign currency, by increasing the share of loans in national currencies from international development banks.

Tatyana Edovina



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