WASHINGTON — Developing nations ran up US$55 trillion of debt in 2018, a record amount that is part of an eight-year debt surge that is the largest, fastest and most broad-based in a half-century, the World Bank said on Thursday.
The global lending institution said in its analysis dubbed “Global Waves of Debt” that four major episodes of debt accumulation occurred among more than 100 nations since 1970. The debt-to-GDP ratio of these nations rose to 168 percent, up from 114 percent, since a debt buildup began in 2010.
That comes to about seven percentage points a year, or almost triple the rate of the Latin America debt crisis of the 1970s, it said, noting that the rise also is exceptionally broad-based because it involves government and private debt and is occurring in nearly all regions of the world.
“The size, speed, and breadth of the latest debt wave should concern us all,” World Bank President David Malpass said in a statement.
“It underscores why debt management and transparency need to be top priorities for policymakers — so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people,” he said.
Since the 1970s, the global economy has experienced four major waves of debt. The current wave began after the 2007-2009 financial crisis—and is the largest yet. New #WavesOfDebt report breaks down the troubling trends: https://t.co/6wJFQJRMP9 pic.twitter.com/VU4uTXh4ad
— World Bank Gov (@wbg_gov) December 19, 2019
Financial crises risk
Historically low global interest rates have fueled the huge debt run-up but also lessened the immediate risk of another global financial crisis.
Over the past half-century, about half of the 521 episodes of rapid debt growth among developing nations involved financial crises that cut per-capita income and investment, the analysis says.
The analysis, which is being released as a book, found the latest debt wave differs from three previous ones because it involves public and private debt, new creditors and all regions of the world. Some of it is fueled by China, where the debt-to-GDP ratio rose to 255 percent, up from 183 percent, since 2010.
Fears that the debts could be become unsustainable are likely to increase with uncertainty over how long the low interest rates will remain. In response, the World Bank recommends that policymakers develop better ways to facilitate the resolution of debts and to provide greater debt transparency.
“History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population,” said Ceyla Pazarbaşıoğlu, a Turkish economist and World Bank vice president. “Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks.”